RIL offers to sell diesel in domestic market

...provided double taxation is removed.

Reliance Industries Ltd (RIL) chairman Mukesh Ambani today met Petroleum Secretary RS Pandey and offered to sell diesel from the company’s refinery in India if the government removes double taxation of the fuel.

If RIL sells diesel in the domestic market, instead of exporting it, the country’s shortage of the fuel will decrease significantly.

Demand for diesel rose by a higher-than-anticipated 18 per cent in the current financial year so far, as the fuel was used by consumers to generate electricity.

India’s government-owned refineries had estimated only 14 per cent growth in demand for diesel, thus they were importing diesel. If RIL sells diesel in the domestic market, it will result in savings for the oil-marketing PSUs.

“They have offered to sell whatever quantity of diesel the oil-marketing companies need, but (they) want the taxation issue to be resolved. We are looking into it,” said Pandey, who met Ambani at his office this morning. Ambani also met Finance Minister P Chidambaram, besides Cabinet Secretary K Chandrasekhar and Revenue Secretary PV Bhide.

RIL’s 33 million tonne per annum refinery was given export-oriented status in early 2007, which makes it compulsory for the refinery to export a minimum of 50 per cent of its products. The refinery would also have to be a net foreign exchange earner. The RIL refinery produces around 11 million tonnes of diesel annually — about 23 per cent of the total volume of the fuel consumed in the country. However, if the company sells fuel produced from the refinery in the domestic market, it would have to pay Customs and excise duty on the diesel sale. There would also be an additional excise duty on the fuel sales. This taxation structure would increase the cost of the diesel. However, RIL itself does not stand to lose due to the taxes as it can pass on the higher costs to the oil-marketing companies, said a Delhi-based analyst.

The oil PSUs – Indian Oil Corporation (IOC), Bharat Petroleum Corporation and Hindustan Petroleum Corporation – had earlier requested the government to cut Customs and excise duty calling it a double taxation that would increase their cost of buying the fuel. “It would suit us to buy diesel from the RIL refinery as it would reduce cost of transporting and insuring the fuel. However, the double taxation would neutralise that benefit,” said an IOC official.

The demand for diesel has been growing by around 18 per cent since April this year as generators and power plants are using more diesel instead of fuel oil. Fuel oil prices, which are market-determined, are generally lower than diesel. But with oil prices rising to over $145 per barrel in July, fuel oil became more expensive than the subsidised diesel in India.

However, lower oil prices currently have driven down the price of fuel oil resulting in higher use of this fuel for power generation. This is expected to bring down the demand for diesel, the IOC official said.