CAG flays govt for Rs 667 cr 'undue' benefits to Essar Oil, Reliance Industries

Jul 19 2014, 10:58 IST
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CAG called for renegotiating rates at which diesel is bought from private refiners like RIL and Essar Oil. CAG called for renegotiating rates at which diesel is bought from private refiners like RIL and Essar Oil.
SummaryComptroller and Auditor General castigates the government's fuel pricing policy.

The Comptroller and Auditor General (CAG) on Friday castigated the government’s fuel pricing policy saying it gave undue benefit of Rs 667 crore to Essar Oil and Reliance Industries, and called for renegotiating rates at which diesel is bought from private refiners.

State-owned fuel retailers buy diesel from private refiners as their own production is insufficient to meet domestic demand.

This purchase is done at trade parity price (TPP) which is 80:20 ratio of import parity price (actual import cost) andexport parity price (actual price realised on exports).

The CAG, in a report tabled in Parliament Friday, said private refiners export balance petroleum products they produce at prices comparable to EPP/free-on-board (FOB), which are lower than TPP/import parity price (IPP).

“Procurement at TPP/IPP affords an undue benefit to private refiners (RIL and Essar Oil), which was estimated at Rs 667 crore on diesel in only one year i.e. 2011-12,” it said.

The same principle is used to buy fuel from standalone refineries like MRPL. “The benefit to stand alone PSU refineries on the same count was Rs 1,428 crore during 2011-12,” it said. As an illustration, CAG said TPP of diesel during 2011-12 at Jamnagar in Gujarat, where the private refineries are located, was Rs 40,031 per kilolitre and average EPP of diesel at the same location was Rs 38,625 per kl.

“Actual export realisation of RIL on diesel during 2011-12 was only Rs 38,823 per kl, slightly higher than the average EPP. Thus, procuring products from private and standalone refineries at TPP/IPP affords an undue benefit to the former,” it said.

CAG said Mangalore Refinery (MRPL) benefited Rs 601 crore, Chennai Petroleum (CPCL) Rs 500 crore and Numaligarh Refineries Rs 327 crore on sale of diesel to state oil marketing companies (OMCs) in 2011-2 on similar terms.

CAG rejected the oil ministry’s contention that in case private refineries are paid EPP based price, central sales tax and coastal freight would have to be borne by OMCs. Besides, private refineries have demanded an extra one dollar per barrel to account for more stringent Euro-III and IV diesel.

The need for an an additional dollar “is not convincing as the purchase price from private refineries already includes inter alia, a quality premium for Euro III/Euro IV products. Such quality premium would also be available if the price is based on EPP instead of TPP,” it said.

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