IOC, BPCL clinch deal with RIL, Essar to restart diesel buy

State-owned IOC, BPCL and HPCL have struck a temporary deal with Reliance Industries and Essar Oil to resume buying petrol and diesel from private refiners on revised terms.

Short of own production, state refiners Indian Oil Corp (IOC), Hindustan Petroleum Corp (HPCL) and Bharat Petroleum Corp (BPCL) buy about 12 million tonnes of diesel annually from Jamnagar refineries of RIL and the Vadinar unit of Essar.

The arrangement, however, broke down earlier this year, with the private refiners seeking a better deal.

Sources said private refiners previously paid central sales tax as well as coastal freight for shipping the fuel from their plants in Gujarat to consumption points in southern and eastern India.

They wanted this cost to be borne by the buyers — IOC, BPCL and HPCL.

As negotiations to work out a final arrangement continued, they resorted to imports as paying both central sales tax and freight would have made the fuel expensive.

Now, an ad-hoc deal has been reached wherein the private refiners will pay the central sales tax and state-run marketing firms will bear the cost of coastal shipping.

According to the sources, the state-owned firms are buying diesel from the two private refiners on a month-on-month basis.

For example, for July, they would indicate the tentative requirement by June 10 and a firm number by June 24.

A final deal is in the works and may take a few weeks to conclude, they added.

During April-May, the three oil marketing companies have bought about 1.2 million tonnes of diesel from RIL and Essar. They also bought a small quantity of petrol (about 0.15 million tonnes).

During 2015-16, the three state-owned firms had bought over 12 mt of diesel and 0.6 mt of petrol from RIL and Essar.

Of this, IOC bought 1.86 mt of diesel and 1,37,000 tonnes of petrol.

During April, India imported 0.5 mt of diesel, mostly on account of state-run oil firms not buying the fuel from RIL and Essar. Import during April 2015 was only 10,000 tonnes.

The sources said state-owned oil firms need diesel from RIL and Essar as domestic consumption is rising at 7.6 per cent, its fastest pace in four years.

Indian Oil Corporation

Hindustan Petroleum Corporation Ltd.(HPCL)

Bharat Petroleum

Reliance Industries Limited (RIL)