Tuesday, July 23, 2024

Petrol under-recovery at Rs 13, diesel Rs 24; Reliance-BP says operations unsustainable

cess on petrol 1

new delhi, May 23: RBML – the joint venture of Reliance Industries Ltd and supermajor BP – has told the government that fuel retailing for the private sector in India has become unsustainable after market-controlling public sector firms frequently froze petrol and diesel prices at rates way below the cost, sources said.
Despite a surge in oil prices, state-owned Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL) first froze petrol and diesel rates for a record 137 days beginning early November 2021 when five states including Uttar Pradesh went to the polls, and last month again went into a hiatus that is now 47 days old.
“They (Reliance BP Mobility Ltd) has written to the petroleum ministry over the fuel pricing issue,” a highly placed source in the government, who didn’t want to be quoted, told reporters here.
While RBML is scaling down its retail operations to cut some of the Rs 700 crore loss it is incurring every month, Russia’s Rosneft-backed Nayara Energy has raised prices of petrol and diesel by up to Rs 3 a litre over and above the PSU rates, to cover for some losses.
The government over the weekend cut excise duty on petrol by Rs 8 per litre and by Rs 6 a litre on diesel. This reduction was passed on to the consumers and not adjusted against the under-recovery or losses oil firms make on selling petrol and diesel.
Two sources aware of the matter said RBML contends that PSU oil marketing companies control over 90 per cent of the market and are the price-setters, leaving no room for private fuel retailers in fixation of the retail selling price of petrol and diesel.
PSUs have not increased fuel prices in line with escalating international crude prices eventually leading to huge under-recoveries (losses) for all fuel retailers since February 2022.
As of May 16, 2022, net under-recoveries in the industry were Rs 13.08 per litre for petrol and Rs 24.09 per litre for diesel.
The top source, quoted in the first instance, said the ministry is going to reply to RBML, but refused to say what it is going to say.
A top ministry official said petrol and diesel prices are decided by the PSU oil companies after considering not just the international oil prices but also gains from other businesses such as petrochemicals and oil refining.
“Reliance is exporting diesel to Europe and other countries at highly lucrative prices but rationing supplies for its petrol pumps,” the official said.
An industry official however said the inference ministry is drawing is incorrect.
Reliance owns and operates two refineries, including one only meant for exports, at Jamnagar in Gujarat. BP has no equity shareholding in them.
RBML is an equal joint venture of Reliance and BP with separate legal identity and separate financial books. RBML buys fuel at market price from Reliance as well as other oil companies to supply to its 1,459 petrol pumps.
“It is like saying that windfall profits that oil producer ONGC is making on spurt in oil and gas prices should be used to help its subsidiary HPCL sell petrol and diesel at highly subsidised rates,” he said.
A spokesperson of Nayara Energy, which has 6,568 petrol pumps in the country, acknowledged having raised fuel prices.
“In recent times, several factors beyond our control have led to an unprecedented increase in crude oil and product prices. The domestic price situation caused an additional shift of volume from institutional business to retail, aggravating the impact of the currently unfavourable retail business environment.
“Nayara Energy, since the beginning of the year has been absorbing a significant part of the substantial drop in margins,” the spokesperson said.
To reduce the impact in the long run and provide a sustainable solution, “there is a nominal price increase across our retail fuel stations,” the spokesperson added.
Private retailers want PSU oil marketing companies to adopt the free market-determined pricing principles, facilitating daily revision until under-recoveries are nullified.
Under-recoveries will not only limit their ability to make further investments but also continue to cause severe hardship and financial duress, they said.
Seven new private retailers have taken marketing authorization for fuel retailing after a relaxed fuel retailing policy was announced in 2019.
Alongside the reduction in central excise, the state government should also cut VAT and shift from ad valorem taxation to specific taxation, they said adding without these steps the private sector will be driven out of the fuel retailing business just like in 2008 when they shut shop after being unable to match highly subsidised petrol and diesel of PSU oil firms. (PTI)