The Oil and Natural Gas Corporation (ONGC) plans to sell crude to domestic refining companies at "the best global prices" after April 2002, when the administered pricing mechanism (APM) would be dismantled.
The corporation's profits are expected to soar once it starts receiving global prices for its crude.
Currently, the government pays ONGC only 60 per cent of the international price for its crude -- the rest goes to the oil pool account -- as against 82.5 per cent of the international price that it should be receiving.
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ONGC caters to almost 30 per cent of India's crude requirement and produces about 25 million tonne of crude per annum.
However, according to analysts, ONGC receives only $16 a barrel, as against the ruling international price of $22 a barrel.
"We plan to sell crude at the best price. I have asked refiners to sign a commercial contract with us to buy crude at the international price," Subir Raha, chairman and managing director of ONGC said.
According to analysts, the commercial contract will not be a hassle for refiners "as they are already paying international prices for their crude."
State-owned refineries and ONGC have held preliminary discussions on the pricing of crude after the dismantling of the APM.
If the refiners do not sign a commercial contract to buy crude at the global price, ONGC will consider selling its products in the international market.
"We will continue giving them crude for a period of two years. Till such time the refiners will have to change their configuration to process other types of crude. The refiners will have to spend a lot of money to modify their units," Raha explained.
The corporation is also planning to include a 'take or pay' clause in the commercial contract, which according to Raha "is a very ethical business offer."
The agreement will cover crude, natural gas, liquefied petroleum gas and also other petroleum products.
"Its a win-win situation for ONGC as well as the refineries. However, as a refiner, we expect some discounts for large crude parcels just as we pass on discounts to our large consumers," an official with a state-owned refinery pointed out.