Reliance presents Rs 1,000 crore bill to OCC

Reliance presents Rs 1,000 crore bill to OCC
Sunil Jain

New Delhi, Nov 22: At a time when the oil pool deficit is taking an additional beating of around Rs 300 crore every one dollar increase in global crude prices, the oil pool account is likely to take another major hit. Reliance Petroleum Limited (RPL) has asked the oil pool account to compensate it for losses of around Rs 1,000 crore that it has incurred while exporting petroleum products since April.

According to ministry sources, Reliance's argument stems from an agreement it had with the ministry, that until it was allowed to market its petroleum products (post March 31, 2002), this was to be marketed through the public sector oil firms -- Indian Oil, Hindustan Petroleum, and Bharat Petroleum. However, due to the fact that the public sector oil firms have added to their own refining capacity in the past couple of years, and demand not picking up to the expected levels, these refineries are not picking up Reliance's full output.

A little over 30 per cent of Reliance's output is not being picked up over the past eight months. Reliance has then exported this at a loss -- that is, at a price less than the refinery-gate price paid to refineries by the Oil Co-ordination Committee. Reliance's exports are today made at a price which is around 15 to 20 per cent less than the OCC-mandated price for various petroleum products.

Reliance has now asked that it be compensated for this `loss'. The firm has been filing for this `loss' every month, and this currently totals to around Rs 1,000 crore.

Reliance's refinery has a total throughput of 27 million tonnes and, after taking into account the fuel and losses as well as the company's internal consumption of products like kerosene and naphtha, a total of 20 million tonnes is available for sale.

In addition, Reliance also has a dispute with the OCC on the price that it has to be paid for that part of its production which is marketed through IOC, HPCL and BPCL. This disupte has its origins in the fact that prices of petroluem products usually differ on the basis of the benzene and sulphur content in them. Reliance has argued that its products have very low sulphur and benzene levels, and so should be priced higher -- this difference between what the OCC has calculated it should pay to Reliance and the company's own calculations works out to in the region of Rs 300 a tonne. Based on the 20-odd million tonnes of petroleum products that Reliance offers for sale each year (less around 3 million tonnes of LPG), this adds up to around Rs 500 crore for the full year.

While the Oil Co-ordination Committee is yet to take a view on the matter, sources in the public sector oil firms say the issue is not that simple. They say that there is no agreement that categorically mandates that they have to pick all of Reliance's products -- that the agreement just states that they will pick up that part of Reliance's output that they require to meet any demand-supply imbalances which occur from time to time.

Reliance's argument to the OCC, however, is that the public sector oil firms which control the marketing outlets are not being forced to export their surplus output at a loss -- they sell their own products in the local market at the higher OCC-mandated price, and refuse to pick up Reliance products. So, the argument goes, either the OCC should make good its loss, or it should ensure that all the oil firms -- public or private sector -- be made to export equal amounts of their production. That way, all the firms make equal losses on exports.