After announcing measures in the Union Budget to cap its subsidy outgo on the fuel, the government has also issued “strict instructions” to the state-owned oil marketing companies—Indian Oil, HPCL and BPCL—to discontinue discounts on bulk sales of petrol and diesel to the railways, state trading corporations and defence including supplies to the Army and Navy.
“Most of our existing contracts with bulk purchasers of fuel especially diesel, like the railways is coming to an end in March 2012,” said a senior IOC official seeking anonymity.
“The government has issued strict instructions to us to all three oil companies to discontinue discounts on bulk sales of diesel and petrol to the Railways, State Transport Corporations and the Defence,” he said.
The move follows a steep upsurge in global oil prices and increased losses to oil companies on sales petrol, diesel, cooking gas and kerosene in the domestic market at below the cost price.
The monthly average sales of diesel by the three oil companies during the current year stood at 941 thousand metric tones and that of petrol at around 11 thousand metric tones. Under the bulk sales contract, the oil companies are offering a discount of around 35 paise per litre of diesel and petrol.
The railways’ is the single largest consumer of high speed diesel followed by defence and the state transport corporations.
Under the fuel procurement procedures followed by the Railways and Defence, the bulk purchasers invite bids from the OMCs—keeping the discount as the bid parameter—and then enters into an annual rate contract with the oil companies.