Govt rejects RIL plea on fuel subsidy

But the ministry turned it down. ‘‘This could result in procurement of products at higher prices from private (Reliance) refinery and sale to private players’ marketing set up at subsidised rates,’’ said a ministry note.

‘‘This would result in PSUs subsidising the private players from the Budget, which is likely to be severally criticised and commented upon by agencies like CAG etc,’’ it added.

Reliance had claimed that the supply at PSU rates would not have a fiscal impact on the government. It had not taken into account sales from its refinery to state-run oil marketing companies at import parity prices.

‘‘It would also be very difficult to monitor whether private players are enforcing price discipline at the same levels as applicable for PSUs, particularly when in the past, information of retail prices has not been forthcoming from them whenever asked for by the government,’’ said the note. The heads of Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum have opposed the move as it would lead to legal and administrative problems.

Reliance had also asked the ministry to include it in the ‘subsidy scheme’ being provided to the OMCs for petrol and diesel. But the ministry claimed that it was merely a ‘sharing of losses’, an internal mechanism among the PSUs for ensuring equity as upstream segment gains whereas downstream segments suffer due to high international prices.

Besides, following an independent pricing policy on auto fuels, the ministry said that Reliance had realised more margins when domestic prices were higher than import parity prices. While such over-realisations were mopped up, RIL had never offered to share it in compensating the under-recoveries on kerosene and LPG.

Reliance, said the ministry, was enjoying the benefit of integration with profits increasing due to higher prices in the upstream, refining and petrochemical business. ‘‘From the financial results of RIL, it is clear there is no case for their being provided financial support on petrol and diesel’’.

Moreover, it said, the funding for subsidy burden was being taken from state-run upstream companies. ‘‘In case private player in the downstream segment are made a part of the sharing arrangement, then there is a case for asking them to give discounts on their share of crude production’’.

If equated with the level of discount that ONGC was expected to provide during 2006-07, private exploration firms would need to give a discount of about $30 per barrel on their share of crude oil production.

Reliance diesel sales have sunk by 90 per cent while that of petrol has halved as its retail price are about Rs 2.50 a litre higher than the OMCs.