Fault in fixing price gave oil companies Rs 50,000 crore gain, CAG says.

NEW DELHI: A comptroller and auditor general audit report on pricing of petroleum products by public sector oil marketing companies, tabled in Parliament on Friday, says the present pricing mechanism benefited them by Rs 50,513 crore during the five year period of 2007-12.

The pricing mechanism allowing an import-linked price at the refinery gate on the sale of regulated products — LPG, kerosene, diesel and petrol — is beneficial to the oil-marketing companies (OMCs), the federal auditor said and pointed out how the faulty pricing mechanism has acted as a source of benefit to the private refineries as well.

The pricing mechanism, including notional import related expenses like customs duty, insurance, ocean freight etc, which are not incurred but are reimbursed to the refineries works out to Rs 50,513 crore for the period 2007-12. Even allowing for import-related expenses incurred by the refineries on import of crude, the oil marketing companies ought to have benefited at least by Rs.26,626 crore through the pricing methodology of products, CAG said.

The government refineries uplift petroleum products from private refineries in order to meet the domestic requirement. The OMCs pay these refineries import-linked prices (RGP) for such products. Private refiners, however, export their balance products at export parity price which are lower compared to the RGP (refinery gate prices).

"This affords an undue benefit to private refiners (Reliance Industries Limited and Essar Oil Limited), which was estimated at Rs 667 crore on high speed diesel alone in one year (2011-12)," it said.

CAG said the mechanism of pricing regulated petroleum products does not reflect the actual cost of operations of refineries. "Being import-linked, the pricing at the refinery gate is a source of benefit for the PSU refineries. The actual expenses relating to marketing of products does not match the elements recovered through the price build-up," it said.

CAG also pointed out that such price protection has not translated to higher investment in technology up-gradation of refineries as was envisaged while considering continuance of the pricing methodology in 2006.

Source : timesofindia.indiatimes.com