Financial Daily from THE HINDU group of publications
Tuesday, Oct 12, 2004
Marketing - Retailing
Corporate - Corporate Disputes
PSU oil cos question Reliance's diesel pricing strategy
Balaji C. Mouli
New Delhi , Oct. 11
PUBLIC sector oil marketing companies have complained to the Government against Reliance Industries Ltd (RIL) selling diesel at Rs 3 per litre below their price through `questionable' means.
They allege that retail diesel sales have been hit to the extent of 50 per cent on account of Reliance's pricing strategy in specific areas. All this has happened within a month of the company setting up retail outlets in these areas, a top public sector marketing official told Business Line. Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) have jointly accused RIL of selling diesel at its own retail outlets in Nagpur in a manner that apparently exempts it from paying sales tax and hence, the ability to sell at a lower price.
In an industry meeting held in Nagpur on September 9 to discuss the issue, officials from the three oil marketing companies recorded the modus operandi that they allege is being used by Reliance to sell diesel at a lower price. To drive home their point, two public sector dealers bought diesel for their trucks from the Reliance outlet at a lower price. The purchase process was far from the "drive in tank up' approach.
"Two of the PSU dealers approached RLL (Reliance Logistics Ltd) requesting for purchasing diesel at lower rate for their own tankers which are plying under valid contract of public sector companies (transporting diesel). Accordingly our dealers have paid money at Rs 26.50 (against the public sector rate of Rs 29.63 per litre) to RLL office for obtaining the diesel requisition slip authorising the RIL outlets to supply the required amount of diesel. The dealers then approached the RIL outlets and fuelled up. It may be noted that RIL or its subsidiaries or the channel partners do not issue any cash memo for these transactions," the public sector companies noted in their meeting.
According to the oil companies' information, "RLL is the sister concern of RIL and is one of their transportation units".
In the eyes of the public sector companies, consumption by Reliance Logistics does not amount to sale of diesel by Reliance Industries (hence does not attract sales tax) and this route is being used to sell diesel at a lower price to other customers.
The journey that a litre of diesel takes from the refinery to the consumer and the tax incidence is as follows. There is no sales tax payout when diesel is transferred from the refinery in Jamnagar in Gujarat to the retail outlets in Maharashtra since it amounts to a stock transfer.
"The product from their outlets is being given to vehicles operating under RLL and shown as if used for their consumption (RLL) and consequently they are in a position to sell at a lesser rate," the oil companies officials note.
"This practice is so rampant that even the common customer can now approach RIL representatives and avail himself of diesel at a lower rate... The practice needs to be examined," the industry meeting of oil companies recorded at the Nagpur meeting.
Ironically, the public sector companies are set to retail around 6 million tonnes of diesel this year purchased from RIL's Jamnagar refinery.
We don't sell at lower price: Reliance
RELIANCE says that it does not sell to others at a lower price. It has denied the sale of diesel at a price lower than that quoted by public sector retailers.
In a reply to a Business Line query, a Reliance spokesperson said, "Reliance Industries Ltd sells to truckers at all its retail outlets at retail selling prices that prevail at nearby PSU retail outlets. `Self Consumption' relates to only a few vehicles that are transporting raw materials and finished products from Reliance's own plants. These trucks are supplied a standard quantity of diesel that is required for the journey. There is no selling price involved in the transaction."
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