Financial Daily from THE HINDU group of publications
Tuesday, Jan 10, 2006
Industry & Economy - Petroleum
Reliance demands compensation for selling petro products below cost price
New Delhi , Jan. 9
RELIANCE Industries Ltd (RIL) has sought compensation similar to what is being offered to public sector oil marketing companies for selling petrol and diesel below the cost price. (The OMCs are Indian Oil Corporation, IBP, Bharat Petroelum and Hindustan Petroleum.)
Mr R.K. Narang, Director, RIL, said that if part of the losses suffered by the OMCs on sale of petrol and diesel is compensated through the issue of oil bonds and discounts extended by upstream firms such as Oil and Natural Gas Corporation, Oil India Ltd and GAIL (India) Ltd, then the same should also be offered to RIL.
Speaking to newspersons at the sidelines of a panel discussion on petroleum pricing organised by The Energy Resources Institute (TERI), here on Monday Mr Narang said, "After administered pricing mechanism was dismantled in 2002, Reliance Industries should be treated on a par with public sector companies."
Market pricing: He said that the retail price of petrol barely makes up for its cost of production. Diesel is being sold at a loss of Rs 2 a litre. Asked why Reliance was selling fuel below cost when it was not bound by any Government diktat unlike the PSU oil companies, Mr Narang said the company could not sell petrol and diesel at a price higher than its competitors.
He said that the company has been asked to extend discounts of Rs 750 crore on the petrol, diesel, LPG and kerosene it sells to the State-owned OMCs. This is "unfair," Mr Narang said, adding, "Reliance is not into marketing of LPG and kerosene, yet it has to pay Rs 750 crore."
In fact, RIL has made out a case for being compensated on a par with public sector firms before the high-power Dr C. Rangarajan Committee, which is looking into petroleum product pricing.
Losses on kerosene, LPG: Domestic oil companies continue to suffer losses due to selling cooking gas (liquefied petroleum gas) below the cost price.
Companies are losing Rs 195 per cylinder on LPG and Rs 10 per litre on superior kerosene oil sold under public distribution system, Mr Ashok Sinha, Chairman, Bharat Petroleum Corporation Ltd (BPCL), said.
Mr Sinha said that if solutions are not found, OMCs would continue to bleed. Putting forth the views expressed in a TERI paper, Dr R.K. Pachauri, Director-General, TERI, said that the subsidies being provided on kerosene and LPG are not catering to the target group.
The Government should move towards market-determined prices as soon as possible and encourage households to shift to cleaner alternatives.
The participants affirmed that any dual pricing strategy for petroleum products would lead to leakages in the system and would be difficult to control.
Subsidies could be provided to carefully targeted consumer groups as direct subsidies, using technological advances in the form of debit/pre-paid cards.
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