Benchmark fuel prices to exports: CAG

Says freight, insurance and Customs duty add notional expenses to refinery gate price, the basis of retail fuel prices

The Comptroller and Auditor General has suggested using exports rather than imports as a yardstick for fuel prices.

State-owned oil marketing companies Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum have seen the prices of regulated petroleum products at the refinery gate rise by Rs 50,513 crore due to notional costs that are not incurred in production.

According to the CAG, costs like freight, insurance and Customs duty add a set of notional expenses to the refinery gate price that forms the basis of retail fuel prices. Higher refinery gate prices inflate the losses of the state-owned oil marketing companies for selling fuel below market prices, says the CAG report tabled in Parliament on Friday.

Over half of the Rs 50,513 crore price inflation at the refinery gate is on account of customs duty. In its reply to the CAG, the petroleum ministry maintains the cost of refining petroleum in India is identical to the refinery gate price and the oil companies do not derive any benefit by adding notional expenses like freight, insurance and customs duty. It also says Rs 28,544 crore relates to the customs duty differential between crude oil and petroleum product imports.

The CAG report says even after deducting Rs 23,887 crore as expenses incurred in importing crude between 2007 and 2012, Indian Oil, Bharat Petroleum and Hindustan Petroleum benefitted by Rs 26,626 crore.

The CAG notes that nearly 20-22 per cent of crude oil is bought locally by the oil marketing companies and since the associated costs are lower than imports, Indian Oil benefitted by Rs 1,854.85 crore between 2007 and 2012.

The government auditor said the petroleum ministry could look at benchmarking refinery prices to exports. "The country has now reached surplus refining capacity, resulting in export of sizeable quantities of petroleum products, especially petrol and diesel. Fifty-three per cent of petrol and 24 per cent of diesel produced in the county were exported in 2011-12," the CAG pointed out.