The UPA government is likely to come under fire from the Comptroller of Auditor General (CAG), which, while reviewing subsidy payment of petroleum products have unearthed how the oil marketing companies (OMC) have been overcharging subsidy from the central government.
The review which uncovered discrepancies to the tune of Rs5,241 crore, also found that two private refiners have also benefited in subsidy sharing to the tune of Rs687 crore during the years 2007-2012.
According to documents available with dna, CAG observed that due to non-review and updating of weights every year for calculating trade parity prices (TPP – refer box), oil marketing companies, including two private refiners, have overcharged subsidy from the government.
CAG observed that private refiners have benefited to the tune of Rs687.21 crore by charging TPP instead of export parity prices (EPP) to OMC for sale of products. It also noted that high flash high speed diesel (HFHSD) used mostly for marine and shipping industry also got the benefit of subsidy and resulted in loss of Rs1,381 crore to the exchequer.
Meanwhile, in its reply, the petroleum ministry has defended the formula of calculating subsidy sharing, and weights taken for TPP. However, the ministry admits that it was a mistake to sale HFHSD at subsidised rates and OMC were now selling all variants of diesel to bulk consumers at non-subsidised rates.
In reference to calculation of TPP, CAG contended that as per the recommendation of the committee ministry should review weights every year depending upon volume of exports of petrol and diesel every year.
CAG calculated that export of these products increased from 25.55% in 2007 to 31.72% in 2011-12. Thus, fixing TPP on 80:20 has to be increased.
“Since the ratio of TPP remained constant and not reviewed annually, the refineries continued to price these products at 80:20 and OMCs submitted the under recovery claims accordingly.
Audit made an attempt to work out the impact on under recovery claims on MS and HSD had the Ministry complied with the recommendation of the Committee and updated the relative weights on year to year basis. Excess claims due to non-revision of the ratio in OMCs, during the period 2007-08 to 2011-12 was to the extent of Rs3,106 crore,” a draft report by CAG mentions.
However, refuting the observations, the ministry says that the export by private refiners, especially Reliance Industries 27 mtpa SEZ refinery should not be taken into consideration). “Entire production of petrol and diesel by the public sector OMC are consumed domestically and they do not export these products except for small quantities to the neighbouring countries.
The percentage of export to the production of petrol and diesel in India (excluding RIL SEZ refinery) is consistently on decreasing trend and much less than the 20% weight taken for calculation of TPP during last 3 years,” ministry replied to CAG.
Sometimes, the OMCs procure petroleum products from private and standalone refineries in order to meet the gap between its own production. Besides, private refineries export petroleum products from its refineries.
Such exports are taking place at export parity price (excluding notional costs included in TPP) However, when the same products are purchased by OMC, TPP rate is applied (80:20 ratio).
“Based on procurement data it was found that private refiners benefited to the tune of Rs687 core,” CAG noted.
Refuting this charges ministry said, “Private refiners have to incur costs related to product placement. This costs is higher then benefits derived by the audit to them.” It should be noted that ministry does not deny the fact that there is a faulty formula for calculation of price for procurement from the private refiners.