Audit Reports
Commercial
Report No. 14 of 2014 - Performance Audit on Pricing Mechanism of Major Petroleum Products in Central Public Sector Oil Marketing Companies, Union Government, Ministry of Petroleum and Natural Gas
Overview
At present, there are three regulated products, viz., High Speed Diesel (HSD), Superior Kerosene Oil (SKO) for Public Distribution System (PDS] and Liquified Petroleum Gas (LPG) for Domestic use. Motor Spirit (MS] or Petrol has been de-regulated with effect from June 2010. Performance Audit of Pricing of Major Petroleum Products covering the period 2007-12 has been conducted with reference to the pricing methodology for regulated petroleum products to ascertain its effect on the stakeholders - viz., Oil Marketing Companies (OMCs), the end consumers, the Government and upstream companies.Refinery Gate Price(RGP) is arrived at by adding various cost elements associated with import of products to their FOB (Free on board) price, though it is the raw material or crude oil (and not the products) that is imported by the refineries. OMCs do not incur bulk of these expenses as majority of the products are processed in OMC refineries rather than being imported. In financial terms, import related elements charged at refinery gate on regulated products produced in refineries over and above the FOB price during 2007-12 worked out to RS 50,513 crore. After allowing for import related expenses on import of crude oil that were estimated at RS 23,887 crore during the above period, OMCs would be expected to derive a price advantage.
However, this advantage does not appear to have been translated adequately in terms of efficiency improvements in refining margins, optimization of costs of production and improvements in yields. This, in turn, is sought to be attributed almost entirely to inherent problems of PSU refineries, viz., vintage, uneconomical size, limitation of configuration, etc. OMCs have taken some initiatives towards technology up-gradation of existing vintage refineries. However, there is still scope for improvement especially Haldia refinery of IOCL and Mumbai refineries of BPCL and HPCL.