New Delhi, Aug. 19: The petroleum ministry is considering a proposal to introduce a differential tariff for the industrial consumers of diesel.

“The move is being contemplated to cut the losses suffered by oil companies for selling the fuel below cost. “We are considering the differential tariff for bulk customers in the power sector,” petroleum secretary R.S. Pandey told The Telegraph.

He, however, said that buyers in the transport sector such as the railways and the State Transport Corporation would continue to get the fuel at a subsidised rate.

Oil companies are losing Rs 16.22 a litre on diesel by selling the fuel at a subsidised price even after the hike of Rs 3 per litre in June.

Pandey said he would take up the issue with the power ministry and the inter-ministerial group.

Arvind Mahajan, executive director of KPMG, said differential tariff was not a solution to the mounting subsidy bill of the government but an alternative to reduce the burden on oil companies.

“Since it is not politically prudent at this juncture to increase the retail prices of petroleum products, the government may come up with differential tariff. But it could have a cascading effect as fertiliser units use diesel as an alternative to naphtha for power generation, which would make the final product costlier,” Mahajan said.

IOC chairman Sarthak Behuria said, “During the first four months, the demand for diesel has grown 18 per cent.” While diesel demand has grown 10-12 per cent in the transport and agriculture sectors, consumption by power producers and other industries has risen 30 per cent.

“We are examining if diesel supplied to other industries should be priced higher than that sold through petrol pumps,” Behuria said.

Domestic diesel availability may fall short because of this sudden spurt in demand and 4.14 million tonnes of the fuel may have to be imported in 2008-09. Of this, 1.26 million tonnes have been imported between April and July.

The total output by IOC, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd in 2008-09 has been projected at 39.49 million tonnes.

Demand, on the other hand, has been estimated at 54.78 million tonnes. Of this, 11.15 million tonnes is to come from refineries, while the remaining 4.14 million tonnes will have to be met through imports. In 2007-08, the demand for diesel grew 14.2 per cent and required imports of 2.35 million tonnes.

Behuria said the government was considering easing norms to allow Reliance Industries’ (RIL) export-oriented Jamnagar refinery to feed the domestic market. RIL will have to first pay customs and excise duty, besides an income tax on its profits, before selling the fuel in the domestic tariff area. Customs and excise duties will increase the price by over Rs 9 per litre of diesel.

It is being examined whether the fuel sold by RIL in the domestic tariff area can be given export status and whether the company will continue to get an income tax waiver. A similar arrangement has been worked out for liquefied natural gas, where RIL sales to oil PSUs in the domestic tariff area are considered as exports.