Reliance may share oil PSUs' losses

Wants to offer discounts to marketing companies.

Reliance Industries Ltd (RIL) is holding discussions with the public sector oil marketing companies (OMCs) for sharing their losses.

Oil industry sources said although three options were being considered for sharing the under-recoveries, RIL was only open to the idea of offering a discount on the petroleum products it sold to OMCs.

The other options before the companies are equitable burden-sharing by exploration, refining and marketing companies; a net back pricing mechanism; or determination of burden share on the basis of gains made by each company on the throughput processed by them.

For instance, in the case of refineries, it can be according to gains made by them on the import parity price of each unit of petroleum products sold by them.

Till March 31 this year, RIL gave a discount on products to OMCs for selling diesel and petrol through their retail outlets. It was equal to 40 per cent of the difference between import and export parity prices which came to an average of Rs 700 a kilolitre.

The issue is likely to come up for discussions on Thursday at an oil industry meet chaired by Petroleum Minister Mani Shankar Aiyar.

Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation had made losses during the first quarter ending June 30.

"The only way they can show profits was through changes in the underrecovery-sharing formula, which has been in existence for about two years now," said a petroleum ministry official while confirming that talks were under way to make RIL also part of the sharing mechanism.

Upstream companies and refineries are beneficiaries of the increase in international prices, since they are paid the import parity price by other companies.

Under the sharing mechanism, conveyed to oil companies every quarter, only the public sector upstream companies, Oil and Natural Gas Corporation, Gail India and Oil India Ltd, were sharing the losses of OMCs on LPG and kerosene.

The government planned to extend the burden sharing to private refiner RIL, but its executives reasoned, "Why should private sector be subsidising political compulsions of not increasing the retail prices of LPG and kerosene?"

The existing sharing mechanism divides the total losses into three portions, with one third of it being borne by the three upstream companies.

The burden share of the upstream companies is decided by the ministry of petroleum and natural gas in proportion to gains made by them in their profit after tax on account of import parity.

Another one third is recovered by OMCs from the prices of petrol and diesel, while they take a hit of one third on their balance sheet.

IOC had entered into a five-year marketing arrangement with Reliance last year for selling products through PSU outlets but the discount was discontinued from April 1, 2005.

Senior executives said PSUs bought 500,000 tonne diesel and 33,000 tonne petrol from Reliance during three months starting April 2005 for which the companies were paying about Rs 1,537 a kilolitre more than the export price.

OMCs bought 4 million tonne products last year from the 33 mt Reliance refinery in Jamnagar in Gujarat.