Partial rollback of diesel dual pricing on cards

The dual pricing of diesel that was brought in as a reform measure to contain the fiscal deficit and reduce subsidy on diesel , may soon be rolled back, at least for the state transport undertakings.
 
The oil marketing companies have requested the Ministry for Petroleum and Natural Gas (MoPNG) to do away with dual pricing for state transport undertakings (STUs). “The OMCs are bleeding and the dual pricing has aggravated the situation. Besides, a lot of diversion is taking place. The government is not benefiting either. Thus we are considering rolling back of the policy for STUs,” said a senior official from the ministry.
 
The official added that defence and railways would be charged at market rates. There are two categories of bulk customers — Defence, railways and state transport undertakings—accounting for 60% of bulk consumers -- and power plants, cement plants and chemical plants.

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OMCs said while on one hand the diesel subsidy has not come down, on the other STUs continue to draw diesel from their retail outlets.  Under-realisation on diesel is Rs 10 per litre. The OMCs increased diesel price last week by 50 paise per litre.  
 
“The dual pricing has served no purpose and we have been most impacted,” said a senior official from IndianOil Corporation Limited, country’s largest oil marketing company. Indian Oil Corporation accounts for the largest share of 78 per cent of the bulk diesel sales market.
 
Of the total diesel consumption of 70 million tonnes (mt) a year, the industry’s bulk diesel sales stand at about 12 mt. Bulk quantities of diesel are sold directly from the depots of OMCs and bulk customers buy more than 200 litres at one time.

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In the past, diesel prices have been controlled by the government due to the sensitive nature of the product as an auto fuel and its impact on inflation.  Paying market-determined prices for diesel in bulk means the price would be higher by around Rs 10 per litre. This, in many cases, has prompted users to flock to retail outlets.
 
“We reiterated our request to the ministry when the fuel conservation drive was launched recently. While fuel diversion is still a problem, many state transport buses have to travel some distance to get diesel in bulk from certain outlets, this is adding to consumption pushing the subsidy up,” said a senior official from Bharat Petroleum Corporation on the condition of anonymity.

The OMCs said they have not been able to stop bulk diesel users from frequenting retail outlets as a clear distinction between the two consumers—bulk and retail users--- has not come about from the ministry.
 
Oil companies were positive about market-determined prices for bulk diesel sales as good realisations from these sales could have helped their financial position given subsidy from the government always comes with a lag.

“Subsidy never comes on time and we borrowed money from the market, we lose interest on the borrowed money. This has become a cost to us. Selling diesel in bulk provides some cushion to oil companies,” said a senior OMC executive. For the year 2013-14, the industry is expected to incur revenue loss of around Rs 1,39,000 crore (Rs 1,390 billion) on sale of LPG, kerosene and diesel.