RIL starts selling Jamnagar diesel to local cos

After a gap of over two years, Reliance Industries has begun selling diesel from its Jamnagar refinery to local companies, with Hindustan Petroleum Corp Ltd receiving the first consignment this week.     

All the three fuel retailers, Indian Oil Corp (IOC), Bharat Petroleum (BPCL) and HPCL, have been talking to Reliance since the time it shed its only-for-exports status of its 660,000 barrels per day Jamnagar-1 or J-1 refinery last month, to make up for the likely shortfall in diesel and petrol they may face in 2009-10.     

"We bought a 40,000-tons diesel parcel from RIL the day before yesterday," a HPCL official said. "They (RIL) had only 40,000 tons to offer to us (in May) as they said their rest of output was committed for exports."     

HPCL currently buys 3 million tons of petrol, diesel and kerosene from Essar Oil, which has a refinery just 5 km away from J-1. 

"We buy 150,000 to 180,000 tons of diesel a month from Essar and 250,000 tons of the products per month from Mangalore Refinery and Petrochemicals Ltd (MRPL)," he said.     

The company currently has 8,033 petrol pumps but does not have an oil refinery in the northern region. In the absence of a product source in the north, HPCL till last year imported 1.5 million tons of petrol and diesel besides sourcing another 2-3 million tons of products annually from MRPL to feed the requirements of its consumers in the northern region.

"Ideally, we would like to replace all of our imports with domestic supplies. But we have to see how of much products are available (from RIL)," the official said adding an annual contract for buying diesel and also petrol was likely to be signed within a month's time.

BPCL, which is also sourcing 1.5 million tons of products from Essar, may need 400,000-500,000 tons of diesel this fiscal because of shutdowns at its two refineries, but it has not yet begun sourcing any product from J-1.

IOC had projected a requirement of 60,000 tons of diesel from RIL over the next two months but is reworking the numbers after a fall in fuel demand in April.

Diesel consumption rose just 2-3 per cent in April. "We will buy from RIL whenever we need but we don't need anything immediately," IOC Chairman Sarthak Behuria said.

A RIL spokesperson declined to comment saying it was not company policy to give information on commercial/specific transactions.

Buying from RIL would help the state-run firms save on ocean freight. Besides, buying from RIL would also be cheaper than imports as products would be priced at the domestic refinery gate pricing formula, which is a mix of 80 per cent import cost and 20 per cent export price of the product.

RIL, which had in 2007 converted J-1 into an Export Oriented Unit (EOU), committing to ship out most of the products, on April 16 surrendered the tag to enable it to sell products domestically. Products from J-1 will also fuel its 1,432 petrol pumps.

An EoU, which gets fiscal incentives like income tax breaks and duty-free import of raw material, is not allowed to sell products domestically unless they pay heavy duties that make the products uncompetitive.

However, even during the EoU period, RIL sold LPG to state firms after the Government made exception to the rule so that domestic shortfall in the cooking fuel is met.