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`Diesel exports only at right price'

Our Bureau

NEW DELHI, June 5

THE State-owned oil companies will try to export diesel and petrol in view of the surplus position of both the products, according to the Petroleum Minister, Mr. Ram Naik. However, in the case of diesel, he added that the product would be sold only if th e international market price is right.

Replying to queries from the media at a press conference on Monday on the supply-demand position of the two products, Mr. Naik said that there was a glut in the diesel market during the last two months partly owing to the drought in Gujarat and Rajasthan . He was confident that the demand would now pick up owing to the monsoon activity.

The Petroleum Secretary, Dr. S. Narayan, reiterated the Minister's stand and said that currently, the excess diesel was within the oil companies' inventory holding capacity.

According to officials, while there is appetite in the international markets for petrol, spot sellers of diesel find few buyers, thereby reflecting on the sale price adversely.

Further, even if diesel is sold, given the sensitivity of the market to volumes, the price would further dip resulting in lowering of margins for the domestic refiners since they are compensated a `import-parity' price for the products sold by them.

According to officials, while the technical minimum production of petrol is higher than the market demand, the converse holds for diesel. In the case of petrol, the technical minimum production is 8 million tonnes as against a demand of 6.5 million tonne s for the current year.

The technical minimum quantity reflects the minimum quantity of a product that is produced at the refinery on cracking of crude.

Yet, diesel production is also surplus since the margins are not so attractive in the case of other petro-products, hence, disincentivising a change in the product mix in line with the supply-demand position. This is because the margins provided to the refinery are decided by the import parity price -- a function of the differential tax rate between the customs duty and the excise duty on the product.

According to officials, the Ministry is working out a regulation whereby any deviation by the refiner from the product mix prescribed by the Oil Economy Board (OEB) (which sets out the production targets for the refineries in line with the demand) would be penalised with fines.