The Telegraph
Saturday , July 19 , 2014
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CAG turns heat on fuel pricing

New Delhi, July 18 (PTI): The Comptroller and Auditor General of India (CAG) today criticised the government’s fuel pricing policy, saying it gave undue benefit of Rs 667 crore to Essar Oil and Reliance Industries. The CAG called for the renegotiation of rates at which diesel is bought from the 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 a trade parity price (TPP), which is a 80:20 ratio of import parity price (actual import cost) and export parity price (actual price realised on exports).

The CAG, in a report tabled in Parliament today, said private refiners export the balance petroleum products they produce at prices comparable to the export parity price/free-on-board, 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, that is 2011-12,” it said.

The same principal is used to buy fuel from standalone refineries such as Mangalore Refinery (MRPL). “The benefit to standalone PSU refineries on the same count was Rs 1,428 crore during 2011-12,” it said.

As an illustration, the CAG said TPP of diesel during 2011-12 at Jamnagar in Gujarat, where the private refineries are located, was Rs 40,031 per kilolitre (kl) and the average EPP of diesel 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.

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

“Audit is of the opinion that there is scope for negotiation with private refiners to rationalise the contracted sale price which will benefit OMCs,” it said.