LPG, kerosene burden may fall on refiners

Units unlikely to continue receiving import parity prices

The government may drop the policy of refiners being paid the import parity price for LPG and kerosene.

This will be part of a mechanism to make standalone refineries share the burden of under-recoveries with oil marketing companies (OMCs) and upstream companies.

Officials told Business Standard, private refiners like Reliance could not be made to share the cost of under-recoveries incurred by OMCs.

But, paying less than import parity price or freezing refinery transfer price could help reducing the burden of OMCs, they said.

Even at present, refiners are not getting the current import parity price for products. OMCs had frozen the refinery transfer price -- the price at which they lift products from the refineries -- for kerosene and LPG on March 1, and for petrol and diesel from March 15.

On being asked whether this could lead to refineries opting for exports rather than feeding the domestic market, officials said export of petroleum products at the cost of domestic demand could be regulated.

Petroleum Secretary SC Tripathi today said, "We are working on policy for equitable sharing of under-recoveries (on domestic LPG and PDS kerosene) among OMCs, upstream firms and stand alone refineries."

The ministry is also considering whether the revenue loss on petrol and diesel should be shared using the same formula.

As per the current arrangement, one-third of the revenue loss on LPG and kerosene is shared by upstream companies like Oil and Natural Gas Corporation, Oil India and Gail Ltd.

Another one third is borne by marketing companies like Indian Oil Corporation, Hindustan Petroleum and Bharat Petroleum themselves, while the remaining is allowed to be met through cross-subsidisation by petrol and diesel.

Standalone refiners like Reliance and ONGC-owned Mangalore Refineries and Petrochemicals Ltd did not have to bear the burden.

"We plan to bring refiners in the sharing scheme," Tripathi said. The ministry of petroleum and natural gas estimates a revenue loss of Rs 13,720 crore in 2005-06 on account of selling LPG and kerosene below cost. OMCs incurred a loss of Rs 82 a cylinder on LPG, while kerosene is under-priced by Rs 10 a litre.

Problems ahead

• Private refiners like Reliance could not be made to share the cost of under-recoveries incurred by OMCs
• Refineries could opt for exports rather than feeding the domestic market
• The ministry is also considering whether the revenue loss on petrol and diesel should be shared using the same formula