New Delhi, Dec 11: Indian Oil Corp (IOC), the largest supplier of diesel to Indian Railways, has threatened to stop fuel supplies to rail locomotives if the railways continues to insists on discounts on rates.
IOC, which supplies 85 percent of the 2.38 million kilolitre (kl) diesel railways need annually, in a letter dated November 29 said, "in case railways insist on the discount terms offered two years ago, diesel supplies to railways would be stopped after December 31, 2007."
In 2005, IOC, BPCL and HPCL offered discount of Rs 300 per kl over market price 2006 diesel sales, while reliance industries offered a discount of Rs 1,104 per kl.
Later, the state retailers agreed to offer a discount of Rs 1,125.27 per kl but railways awarded the contract for 14 Railway Consumer Depots (RCDs) belonging to public sector firms, to RIL.
"Although, RIL undertook diesel supply in 2006 for some of the RCDs awarded to it, later on after realising that diesel marketing is not favourable due to negative margins, RIL unilaterally stopped diesel supplies," the letter said adding the state retailers had to fill-in for RIL.
For the tender for diesel supplies in 2007, RIL did not quote and the state-retailers offered a discount of Rs 300 per kl but the railways extended validity period of rate contract for 2006 (including discount of Rs 1125.27 per kl) up to December 31, 2007.
For 2008, the PSUs did not offer any discount and RIL did not make any quote. New private entrant Essar Oil offered diesel supplies to only one RCD without any discount, IOC said, adding the Railway Board has not finalised the tender and may take "undue advantage" of the 2006 contract.
Discounts, IOC said, would adversely impact the oil marketing companies' initiative of cost optimisation by removing discounts on diesel supplies to major direct customers.
"In view of such unilateral extensions of rate contract terms, PSUs (IOC, BPCL and HPCL) have already advised Railway Board that for 2006, against tendered quantity of 2.06 million kl, the three PSUs supplies 2.37 million kl," IOC said in the letter to the Petroleum Ministry.
For the extended period up to December 31, 2007 also, the three PSUs together have supplied 2.05 million kl (January- October) and that existing rate contract terms for extended period up to march 31, 2007 would be honoured.
"However, it was advised to Railway Board that OMCs would consider supplies beyond December 31, 2007 only as per the terms quoted by them in their offer against tender opened on September 7, 2007. Railway board has so far not considered the offer and is yet to issue new rate contract as per revised terms," it said.
Bureau Report