The government believes that this will also invite similar requests for compensation from existing refineries, thereby entailing a substantial burden on the pool account.

Back-of-the-envelope calculations show that the financial implications of the proposal to pay terminal charges alone would be in the range of Rs 1,000 crore annually. Overall, there would be an enormous load of Rs 1,800 crore a year on the pool account, a burden which will be borne by customers in the form of price they pay for petroleum products.

The cabinet, it may be recalled, had approved payment of import parity prices for refineries. Sources say that any payment towards terminallingand inventory holding charges would be over and above this level and would, therefore, require cabinet okay.

The products from the two refineries need to be moved from Jamnagar to Kandla which would again translate into an additional burden on the pool account. This is because these costs are not being incurred at present since the imports are handled at Kandla itself. The pool, sources say, will suffer from an additional burden arising due to the sales tax under-recoveries on quantities moved outside the state compared to zero sales tax on imports at present.

Both RPL and Essar Oil are likely to secure a deferment of sales tax for 15 years. The current thinking in government circles is that the two companies may be persuaded to adjust the sales tax under-recoveries from the benefit accruing to them on account of tax deferment. In case the transportation cost and sales tax under-recoveries are compensated to RPL and Essar Oil, the financial burden on the pool account is estimated to be provisionallyaround Rs 1,000 crore annually.

The cabinet had, nearly two years ago, decided that prices must be adjusted in such a manner that the pool account does not run into a deficit after allowing for normal payments to the oil companies and of interest and prinicipal to the government as regards the oil bonds issued to the PSUs. Hence, approval of the cabinet would be needed in case the under-recoveries are to be absorbed by the pool account.

The government is believed to have reiterated that as per the notification issued on dismantling APM (administered pricing mechanism), refineries are to be paid only the import parity price. It is amply clear, sources say, that no further payment need be made for whatever has been accounted for in import parity price.

These import parity prices include all charges payable to the seller, in this case the refineries, till the products are delivered to the buyer. Hence, the charges for evacuation of the products by the refineries are included in the import parityprice.

The terminal charges, inventory holding, stock loss etc for such evacuation to be handed over to the marketeer in addition to import parity prices are, therefore not payable. Experts say that this amounts to making double payments for the same function and is, therefore, not justified. As indicated already, the terminal charges alone for the RPL/Essar Oil refineries work out to Rs 850 crore and would result in a situation where existing PSU refineries would claim similar benefits.

The government is as concerned about the import of products like motor spirit (MS) and high speed diesel (HSD) which are likely to be surplus during the current financial. The alternatives are either to buy the entire output of RPL and Essar Oil till 2002 or confine it to the requirements of the public distribution system.

Insight

The existence of a clause for payment of terminal charges to be paid by the marketing companies to refining companies is rather strange, as at present, Indian refining companies bearlosses in case the marketing company fails to pick up the stocks.

Such a charge would straightaway deplete the surplus on oil account as it is a well known fact that India would have a surplus in production of refined products, and consequently there would be increased inventory. Accordingly, because of the strain on the oil pool, existing refining companies may not get their redemptions of the oil bonds and distortions in the pricing of the products would continue for a much longer time.