Reliance prefers to sell its products at home

Vol 4, PW 16 (13 Sep 00) Midstream & Downstream

International traders worried that Indian oil products might soon begin to flood the market, forcing prices down, can take comfort from the fact that given the choice, the country's private sector refiners, in particular Reliance Petroleum, would prefer to sell their products at home rather than abroad.

The reason for this is simple. When Reliance sells its petro-products to Indian Oil Corporation or Bharat Petroleum it receives the same price as the state-owned refiner would have paid had it imported the products from abroad.

This is known as 'import parity'. In addition, Reliance would receive the equivalent customs duty that would have been paid on the product at the receiving port had the state-owned refiner imported it from abroad.

These import duties range from between 15-35% depending on the product (see table below ). By contrast, when Reliance exports its products abroad, to Bangladesh for example, where this month it despatched 35,000 tonnes of commercial grade diesel for delivery to Chittagong, it loses the customs duty element of the payment that it would have otherwise received had it sold the product in India.

Oil ministry data indicates that in July Reliance's 27m t/y refinery at Jamnagar processed 2.259m tonnes of crude. Custom duty rates announced in budget presented to parliament on29th February 2000 Item 1998-99 1999-00 Crude Oil 20% 15% Motor Spirit (petrol) 30% 25% High Speed Diesel 30% 25% Aviation Turbine Fuel 30% 25% Light Diesel Oil 30% 25% Furnace Oil 30% 25% Bitumen 30% 25% Low Sulphur Heavy Stock 30% 25% All other petroleum products 30% 25% Kerosene (Parallel Marketing Scheme) 30% 35% (Source: Ministry of Petroleum & Natural Gas)