Oil ministry not enthused over railways' bid to import crude

Railways is hopeful of bringing down fuel costs by up to Rs 1,500 crore through this move

A proposal by the rail ministry to import crude oil and to book refining capacity with oil companies has failed to cut ice with the petroleum ministry.

The railways, the country's largest buyer of diesel, is hopeful of bringing down fuel costs by up to Rs 1,500 crore through this move, but the oil ministry is not convinced the plan will lead to substantial savings.

The railways consumes 2.8 billion litres of diesel a year to run 6,000 diesel locomotives. This costs around Rs 18,000 crore, nearly a fifth of the railways' ordinary working expenses. Locomotive fuel is procured from oil companies through their networks of depots. A large chunk of the fuel bill goes into paying state taxes.

"Their proposal is to import crude oil and use our refining capacity by paying us tolling charges. We have excess refining capacity. Even the issue of tolling charges can be managed. But the proposal has certain limitations. The oil ministry, finance ministry and state governments are also involved," said an oil ministry official who did not wish to be named.

"They are thinking their cost will come down if they procure fuel directly from the refinery. But how will they reduce the tax outgo? State level taxes will still apply," he added.

A rail ministry official said the railway board had written to Indian Oil Corporation (IOC), the nation's largest fuel retailer, to take the plan forward.

CRUDE OF CONTENTION

• The railways consumes 2.8 billion litres of diesel a year to run 6,000 diesel locomotives, spending Rs 18,000 crore
• For the railways, the move is part of a bigger plan to cut avoidable expenditure and explore new revenue sources
• The railways’ ordinary working expenses came down 7.5 per cent to Rs 110,000 crore in the revised estimate for FY16 as compared to Rs 119,000 crore
• The savings on diesel accounted for Rs 1,927 crore of the cost reduction, while electricity cost savings accounted for Rs 1,566 crore

"IOC will import crude oil on our behalf and we will pay tolling charges to the company for the capacity booked by us. We now buy diesel paying state taxes at multiple levels, which jacks up costs," he said.

For the railways, the move is part of a bigger plan to cut avoidable expenditure and explore new revenue sources. The plan was made public earlier this month by Railway Board Financial Commissioner S Mookerjee at a gathering of industry representatives from the Confederation of Indian Industry (CII).

"We are exploring a policy to procure crude oil and then take refining capacity on lease. This is a new thing we are trying to do from next year. This will be in addition to the savings from continued direct purchase of electricity," Mookerjee had said.

The railways' ordinary working expenses came down by Rs 8,700 crore (or 7.5 per cent) to Rs 110,000 crore in the revised estimate for 2015-16 as compared to the budget estimate of Rs 119,000 crore. The savings on diesel accounted for Rs 1,927 crore of this cost reduction while electricity cost savings accounted for Rs 1,566 crore.