State refiners to sell less Reliance products

State-owned oil companies have decided to scale down their marketing of Reliance Industries' (RIL) products to 7.5 million tonne in 2004-05 from 11.7 million tonne marketed in 2003-04.

Though a final pact with RIL is yet to be inked, the oil companies are expected to buy the produce at a discount of at least 40 per cent.

The oil companies, through their 21,754 retail outlets across the country, will market 4.3 million tonne o Reliance's diesel, 0.3 million tonne of motor spirit (petrol), 0.4 million tonne of superior kerosene oil (SKO) and 2.5 million tonne of Liquefied Natural Gas (LPG).

A source close to the deal claim that discussions are still going on the commercial terms of the agreement.

However, the industry (state-owned oil marketing companies) has decided to buy 7.5 million tonne of products from Reliance to market through their outlets this year.

"It is a win-win situation for all the parties. There was no question of accommodation now, the entire deal is purely on commercial consideration," the source pointed out.

Explaining the win-win angle, the source said that for the oil companies it is purely an opportunistic gain as they will buy products at a discount, while Reliance will reduce losses as it will sell products at a price higher than the notional export prices.

The domestic price of transportation fuels - diesel and petrol- are linked to import parity prices.

"The economics of make versus buy has worked in this case. The PSUs will not make losses by absorbing Reliance's products," he added.

While the oil PSUs discuss the commercial terms for selling Reliance's products, IOC's second 5-year pact till 2008-09 with Reliance continues. Under the agreement, IOC will pick up the products if there is any shortfall.

"The commercial terms for this agreement will also be reviewed on an annualised basis", the source added.