Diesel imports soar on pvt exports, demand

Exports by Reliance Industries and Essar Oil from their refineries rose almost 34% last year.

Diesel imports by government-owned oil companies last year saw a huge jump as cars run on subsidised diesel fuelled domestic demand while private sector refiners increased exports to escape the negative margins in the domestic market.

The main fuel retailers in the country "" Indian Oil, Bharat Petroleum and Hindustan Petroleum "" sell fuels at controlled prices, with the gap between the actual selling price and the desired selling price of diesel, also known as under-recovery, standing at Rs 13 per litre.

This was one of the main components of the under-recovery bill of Rs 78,000 crore for the government-owned companies last year.

Data from the petroleum ministry show that diesel imports by public sector oil marketing companies ""IOC, Bharat Petroleum and Hindustan Petroleum "" during April-February 2007-08 rose 165 per cent to 2.32 million tonnes (mt) compared with the same period last year. 
 

DIESEL IMPORTS (in million tonne)*
2007-08**	2.46
2006-07	0.92
2005-06	0.73
2004-05	0.81
2003-04	0.10
*Over 95 per cent imported by state-controlled refineries **till February 2008 Source: Petroleum ministry

The private sector refiners, meanwhile, posted 34 per cent growth in diesel exports during the April-Februray period.

"Over the last six months, the demand for diesel in the country has gone up drastically. Our refineries were ready to meet the projected growth of 8-9 per cent in demand for diesel. However, the demand has been growing 16-17 per cent," said a senior official with IOC, the largest crude oil refiner and marketer of petroleum products in the country.

Diesel, naphtha and LPG are the major products imported by the country's oil marketing companies.

"Domestically, there is a shortage of LPG and naphtha production capacity," said an official with Hindustan Petroleum Corporation (HPCL). "The spurt in diesel has come as a surprise," the official said.

The country's refining capacity of 149 million tonne per annum (mtpa) is almost 27 per cent higher than the domestic consumption of around 117 mtpa petroleum products. However, with Reliance Industries' 33 mtpa and Essar Oil's 10.5 mtpa refineries exporting almost all their products, the capacity of the government-owned refiners is 10.37 per cent lower than the consumption.

Demand in the country is growing around 5 mtpa annually. "This means a 15-mtpa refinery needs to come up every three years," said the IOC official.

Previously, diesel used to be imported in small amounts to meet the shortages resulting from short-term closure of refineries. "Now, the capacity of our refineries is not enough to meet the growth in demand for diesel," said the IOC official. Companies are already planning to realign their refineries to produce more diesel.

The high demand is coming from the automotive sector. "Diesel cars are attractive now as they give almost double mileage than petrol cars," the official said. "Also, the myth that diesel engines need high maintenance has been shattered."

Diesel is also cheaper than petrol by almost Rs 12 per litre, prompting sections of officials in the petroleum ministry and the oil industry to call for narrowing down the price difference between the two fuels.