Export-parity regime may make IOC's Paradip refinery unviable.

NEW DELHI: Indian Oil Corp's most modern refinery, the 15-million tonnes Paradip plant that will be commissioned this year, will be unviable if the government changes the pricing mechanism along the lines proposed by the finance ministry, top officials of the state-run refiner said.

The finance ministry wants state firms to charge the domestic consumer the same price at which exports of refined products leave Indian shores. The current system calculates the price by giving 80% weightage to the landed cost of import of petrol and diesel after paying a notional customs duty, which refiners do not actually pay.

Further, India is a big exporter of oil products. "Not just Paradip, most of the public sector refineries will be sick if we shift to the proposed export parity regime.

We have calculated the economics on the basis of the current pricing system based on import parity," IOC's director for finance, PK Goyal told ET. The proposed exportparity system will reduce IOC's revenue by Rs 6,000 crore a year, and industry's revenue by Rs 13,650 crore a year. The burden of subsidy would also fall by the same amount.

The finance ministry's view is based on a panel headed by BK Chaturvedi, former cabinet secretary and currently a member of the Planning Commission. In a recent letter to the government, IOCBSE -0.62 % has questioned the Chaturvedi committee report of 2008, an oil ministry official said.

The finance ministry, which is keen to control fiscal deficit, particularly the expenditure on subsidies, is pushing for the new system. The letter written by IOC Director-Finance PK Goyal said: "To our understanding this committee's report has neither been discussed with OMCs (oil marketing companies), nor considered by the government." The Chaturvedi committee report favoured export parity pricing, which it said was closer to the quoted international prices.

India does not import diesel or any other products, hence, there is no rationale of charging import-parity prices, the report said.

Goyal said Indian refiners import about 80% of the crude oil they process, and they cannot afford to sell at export parity prices without "jeopardising our viability".

"The committee report, however, ignores the fact that these countries whose prices are largely basis for FOB/international quotes, also do not import crude oil to the extent that Indian refining industry does," Goyal said.

He said the government should rely on the Kirit Parikh Committee on pricing of sensitive petroleum products, which it constituted in 2010 and accepted after due consideration. The Parikh committee says that any pricing mechanism should ensure the financial health and competitiveness of the industry.

Executives of state oil firms said the change in formula would dissuade private refiners such as Reliance IndustriesBSE -0.31 % and Essar OilBSE -0.95 % to supply fuels including diesel and liquefied petroleum gas (LPG) to them because of low realization.


Source : economictimes.indiatimes.com