Date:25/02/2006 URL: http://www.thehindubusinessline.com/2006/02/25/stories/2006022503590800.htm

Back Marginal relief to OMCs — Freight reduction on petrol, diesel

Our Bureau

New Delhi , Feb. 24

Consumers will have little to cheer from the eight per cent reduction in freight tariff on petrol and diesel announced in the Railway Budget 2006-07.

However, the State-owned oil marketing companies (OMCs), which have been suffering a pinch in their bottomlines for selling petroleum products below cost price, may experience a marginal relief in the form of payout savings to Railways.

According to the industry, the reduction of duty would not make any impact on the selling price of these products. An Indian Oil Corporation official said, the freight cost, which the OMCs take while fixing retail price of a fuel, is actually a notional cost, which is about half the real cost. So, a cut in the real cost would not help because the companies never charge the real cost of moving the products, he explained.

As regards, the impact on their bottomlines, the official said the companies, which transport these products through Railways, would be paying less for transportation. The railway transportation costs for petrol and diesel is expected to come down between Rs 60 crore and Rs 80 crore for Indian Oil. The industry payment is likely to decline to Rs 150-160 crore. Indian Oil moves 13 million tonnes (mt) of petrol and diesel through Railways.

The Railway Minister, Mr Lalu Prasad, on Friday announced there would be no across the board increase in freight rates for 2006-07. Instead, to simplify and rationalise goods tariff, he proposed to reduce the number of commodity groups to 28 and lower the highest class for charging freight from 240 to 220. With this, the reduction in freight rates of diesel and petrol would be by around 8 per cent. Over the next three years, the highest class will be lowered below 200.Reliance Industries also feel the impact would be marginal. The company is moving products worth 2.5-3 mt through Railways. Hence, the impact would be to that extent, sources said.

The Railways had budgeted Rs 2,682.54 crore last year for petroleum, oil and lubricants and earned Rs 2,930.96 crore, loading 34 mt of products. This year, it is budgeting lower at Rs 2,899.99 crore, targeting 33 mt.