The largest supplier of diesel to Indian Railways, Indian Oil Corp. (IOC) has threatened to stop fuel supplies if the railways continues to insists on discounts on rates. IOC, which supplies 85% of the 2.38 million kilolitre (kl) diesel the 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, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd offered discount of Rs300 per kl over market price 2006 diesel sales, while Reliance Industries Ltd, or RIL, offered a discount of Rs1,104 per kl. Later, the state retailers agreed to offer a discount of Rs1,125.27 per kl, but the railways awarded the contract for 14 railway consumer depots (RCD) 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 realizing 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 Rs300 per kl, but the railways extended validity period of rate contract for 2006 (including discount of Rs1,125.27 per kl) up to 31 December. For 2008, the state-retailers did not offer any discount and RIL did not make a quote. The Railway Board has not finalized the tender and may take “undue advantage” of the 2006 contract, IOC said.