New Delhi: Picking holes in the formula by which petroleum products including diesel and LPG products are priced for the general public, CAG has estimated that it resulted in state owned oil marketing companies (OMCs) benefiting upto Rs 26,600 crore between 2007-08 to 2011-12.
CAG said that OMCs used the similar faulty formula to buy petroleum products from private companies which gave them undue benefits. “The benefit to private refiners (Reliance Industries and Essar Oil) for a single year (on diesel alone) is estimated at Rs 667 crore,” said CAG report on ‘Pricing Mechanism of Major Petroleum Products in Central Public Sector Oil Marketing Companies’.
CAG said that as per the pricing mechanism, refinery price (RGP) of a fuel is arrived at by adding various cost elements associated with import of products to their FOB (free on board) price.
This means for petrol, the price at which it is available in Singapore is considered, while for diesel, kerosene and LPG the price prevailing in the Arab Gulf is taken as the base price.
Then to these prices, import related expenses are added to determine the price of a fuel. These import related expenses are freight charges, insurance, custom duty and ocean loss among others.
However, CAG pointed out that OMC refineries process these products rather than import them and hence do not incur such import related expenses. CAG said that RGP is the basis for the retail sale price and determination of under-recoveries. The auditor said a higher RGP impacts the price at the retail level as well as the quantum of under-recoveries.
CAG said that the quantum of such cost elements recovered through RGP, though not actually incurred was worked out as Rs 50,513 crore for the period 2007-12.
“The OMCs, however, import crude and hence incur expenses related to import of crude. Allowing for such import related expenses on import of crude oil estimated at Rs 23,887 crore, the OMCs ought to have benefited by around Rs 26,600 crore through the pricing of products at the refinery gate,” said CAG in its report.
