Naik asked to extend marketing deal by two years

Vol 7, PW 24 (25 Feb 04) Midstream & Downstream

Reliance believes it is being victimised because its Jamnagar refinery is too efficient and modern for the comfort of the state-owned cartel.

Most Indian refineries produce only 3% of LPG per tonne of crude, continues the Reliance letter to Ram Naik. But Reliance produces about 8% of LPG from each tonne of crude.

Then, to produce 2.3m t/y of LPG Reliance is required to produce over 16m t/y of diesel, kerosene and jet fuel. Naik is told that Reliance produces 30% of Indias demand for LPG, 28% of the demand for kerosene and nearly half (46%) of the domestic LPG production.

Logically, it is eligible to supply the same percentage (46%) of the countrys diesel demand. In that case, diesel offtake from Jamnagar (by the state refiners) will be over 15m t/y.

Reliance argues that Jamnagar accounts for nearly a quarter of Indias domestic refining capacity and should be eligible to supply over 11m t/y of diesel. However, as a measure of compromise, Reliance has requested that its diesel share be maintained at 19% of domestic demand in the forthcoming agreement.

But even this, argues Reliance, is a severe penalty borne by us. Reliance points out that till Jamnagar was fully commissioned (with 27m t/y) in 1999-2000, India continued to import diesel.

It is the subsequent expansion of PSU capacities (Numaligarh 3m t/y; MRPL expansion 6m t/y; Koyali expansion 4.2m t/y; Vizag expansion 3m t/y; and, Barauni expansion 2.7m t/y) that has caused the present surplus in the country, argues Reliance. It cannot be the policy of the government of India that one refinery (Jamnagar) must bear the burden of the entire countrys surplus.

Reliance said it had applied for a retail marketing licence as far back as 1999, but received permission only in April 2002 (when the retail sector was de-regulated). By no means is 20 months enough to set up a marketing network when the PSUs have been at it for over 30 years.