CAG’s new revelation: UPA’s free hand helped oil companies gain Rs 50,000 crore

At a time when the nation is reeling under acute oil crisis, a recent Comptroller and Auditor General (CAG) of India report has hinted at faulty fuel pricing policy of the erstwhile UPA Government which benefited private firms by Rs 50,513 crore during the period of five years between 2007 and 2012.

Government gave favours to private firms:

Criticising the central government's fuel pricing policy, the CAG has blamed the former for giving undue benefit of Rs 667 crore to Essar Oil and Reliance Industries (for 2011-12) and called for renegotiating rates at which diesel is bought from private refiners.

In a report tabled in Parliament on Friday said petroleum products are rated as if they are imported from abroad whereas in reality they are produced in local refineries.

Faulty methodology led to undue benefits for RIL & Essar Oil: CAG

State-owned fuel retailers buy diesel from private refiners as their own production is insufficient to meet domestic demand. This purchase is done at trade parity price (TPP) which is 80:20 ratio of import parity price (actual import cost) and export parity price (actual price realised on exports).

Audit opined that there is scope for negotiation with the private refiners to rationalize the contracted sale price which would benefit oil marketing companies (OMCs).

Notional import related expense such as customs duty, freight and insurance that are not incurred but are reimbursed to refineries works out to 50,513 crore for the 2007-12 period.

"This affords an undue benefit to private refiners (Reliance Industries Limited and Essar Oil Limited), which was estimated at Rs 667 crore on high speed diesel alone in one year (2011-12)," the audit exposed.

The auditor said continuance of protection in the pricing mechanism was intended to improve efficiencies and encourage investments in technology upgradation which has not been achieved. It also suggested considering an alternate transparent, target oriented mechanism in the case of poorly performing refineries.

Public sector oil marketing companies (OMCs) incurred excess marketing cost on sale of regulated products over the admissible rate fixed by the government, CAG said.

"There is a mismatch between the actual transportation cost and the amount factored in the product pricing on account of freight. OMCs were compensated slightly higher than the actual cost," it revealed.

UPA stands exposed:

This entire development reveals that the Congress-led UPA government's callousness which led to the loss to thousands of crores to the public exchequer. This also shows that the Oil Ministry turned a blind eye to such developments and made no attempts to put a restriction over private players, gobbling public money over years. The UPA, just like in 2G and coal scam cases, failed to crack the whip against nonperforming private players.

On the contrary, the Narendra Modi government, which is often termed pro-industrialists and alleged of being soft against industrialists, had last week slapped an additional penalty of $579 million on Reliance Industries for producing less than targeted natural gas from its KG-D6 block. By doing so the new dispensation has sent a clear message that all it cares is business and it is not going to be soft on violators.