RIL, Essar Oil pitch for auto fuel pricing freedom

Eyeing renewed opportunities in fuel retail amid stable crude oil prices, private fuel retailers today pitched for pricing freedom or government subsidy for a level playing field with their state-owned counterparts.

Reliance Industries Ltd, Essar Oil Ltd and Shell on Friday made presentations to the expert group of pricing of petroleum products headed by former Planning Commission member Kirit S Parikh.

The panel is examining government’s pricing policy for petrol, diesel, kerosene and cooking gas, and will advise on a sustainable system.

Currently, government regulates pricing of the four sensitive petroleum products and subsidises state-owned oil marketing companies — Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd — for revenue losses incurred on sales at controlled rates.

In its presentation, Reliance said, pricing freedom is likely to ultimately benefit users as it will usher in efficiency of operations due to increased competition. “Consumer interests are best protected against price fluctuation by implementing annual moving average of pricing,” the Mukesh Ambani company said.

Reliance said if fuel prices are not freed, government should start compensating private retailers for their losses on the lines of PSUs. “If prices are not freed, the private sector should also be treated at par with public sector undertakings. Private sector cannot survive if government subsidises petrol and diesel only for PSUs,” Reliance said.

Reliance had shut down its 1,432 fuel outlets across  the country in March 2008 following losses on sale of petroleum products at competitive prices. Other private retailers — Essar Oil Ltd and Shell — had also scaled down their retail operations, as crude oil prices had risen sharply last year and widened their revenue losses.

However, when crude prices started to fall again in the second half of 2008, some private retailers restarted operations. Reliance president (refinery business) P Raghavendran had said earlier this week that the company has restarted operations at 900 of its outlets, and is currently selling around 2,000 kilolitre petrol and diesel on a daily basis.

Essar Oil said it is the right time for freeing fuel prices. “The timing is appropriate for freeing fuel prices, as crude prices are stable at $70-80 per barrel. Currently, only a marginal increase in petrol and diesel can avoid under-recoveries,” the Ruias-promoted company said.

It also suggested the government should bring sensitive petroleum products under the ambit of proposed goods and services tax. “Petroleum products should be brought under the ambit of GST to avoid cascading impact of duties and taxes on end  customer prices,” Essar Oil said.

State-owned retailers are currently incurring a revenue loss of Rs 3.85 per litre on petrol and Rs 3.71 on diesel. State-owned fuel retailers also made their presentations before the panel.  The companies also sought pricing freedom, which they said would help them cut losses.

The panel of experts, which was announced by finance minister Pranab Mukherjee in his Budget speech in July, includes finance secretary Ashok Chawla, petroleum secretary R S Pandey, among others. The panel is likely to submit its recommendations by end December.

The necessity for a stable pricing policy emerged after state-owned oil retailers reported huge revenue losses in 2008-09, pulling them into the red.  In 2008-09, the three state-owned companies posted around Rs 1.03 lakh crore revenue loss on sale of petrol, diesel, kerosene and liquefied petroleum gas.