India’s state refiners may halt diesel imports after working out a temporary mechanism to resume buying the fuel from private processors if global diesel prices remain at current levels, two refinery sources said.
State refiners stepped up imports in recent months after private refiners refused to continue absorbing sales tax and coastal freight costs, making the domestic fuel more expensive.
Indian imports were a factor behind the stronger Asian gas oil crack, which has been holding near $12 a barrel for the fifth straight session on Monday, after almost doubling to $11.74 on June 2 from this year’s low on April 6.
Under the latest arrangement, private refiners will pay the central sales tax and state-run marketing firms will pay coastal freight costs for interstate cargoes shipped from plants in Gujarat, the sources said.
Country’s diesel use is rising along with an economy that grew by 7.6 percent in the financial year to March 31. In the last fiscal year India’s diesel demand grew 7.5 percent, its fastest pace in four years.
To meet this soaring demand, the three state-owned firms last year bought some 12 million tonnes of diesel from the private oil processors.
State-owned Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp sell the bulk of diesel consumed in the country.
Diesel is used as a transport fuel but also for power generators and in irrigation systems and heavy equipment, including those for farming.
The approaching monsoon in parts of India could reduce the need for power generators as the weather cools.