Indian state oil cos to buy up to 35 pct more diesel

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30 Jul 2008

Indian state refiners are likely to import up to 35 percent more diesel this fiscal year to meet surging demand from the power generation sector, the head of the country's biggest refiner and retailer said on Wednesday. Sarthak Behuria, the chairman of Indian Oil Corp, said diesel imports by state-run oil firms in the year to March 2009 were likely to rise to 3-3.5 million tonnes from 2.6 million tonnes in the previous year. India subsidises diesel prices, making the fuel cheaper than fuel oil, which is sold at market rates, and encouraging industrial users and power plants to switch fuels.
"If the demand continues like this at over 15 percent (on year) then on an industry basis, our imports will be 3-3.5 million tonnes," Behuria said.
"We have seen unprecedented growth because diesel is priced lower than industrial fuels like fuel oil and it is increasingly finding application in the power sector," Behuria told a news conference.
"Diesel costs four to five rupees less than fuel oil and the demand growth for fuel oil is negative 4-5 percent."
IOC's director of finance, S.V. Narasimhan, said the firm imported 200,000 tonnes of diesel in the April-June quarter. "We have no plans to import diesel in next two to three months," he said. "In October, we will review the situation and then take a call on imports." 
Narasimhan added the firm may import 700,000 tonnes to 1 million tonnes of diesel from October to March.
Behuria said a 18-20 percent increase in diesel demand was a concern because the firm incurs huge losses on sales of the fuel, which it has to sell at heavily discounted state-set prices.
State-run firms sold 17.7 percent more diesel in the June quarter at 13.36 million tonnes. State refiners, which get government compensation for selling fuel at cheaper rates, imported about 1.18 million tonnes of diesel.
Narasimhan said IOC's revenue losses in the June quarter on fuel sales was 73 billion rupees ($1.72 billion) net of the discount given on crude purchases by upstream firms and 135.27 billion rupees worth of oil bonds issued by the government.
"Of the total under-recoveries, 50 to 55 percent was loss on sale of diesel," he added.
In the June quarter the firm registered its highest-ever gross refining margins of $16.81 per barrel against $10.70 in the year-ago period.
IOC has about 10 refineries spread across India with a total capacity of 1.204 million barrels per day (bpd).

Source: Reuters