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Hike in bulk diesel price : Will it lead to black market ?

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The government's decision to allow market rates for bulk users of diesel will result in a 15% increase in costs for commercial entities such as IT parks, malls, hotels and large office buildings. Bulk buyers who use diesel to run generators during power cuts will now have to pay roughly 60 per litre of diesel against 49 earlier.

The ministry reckons dual pricing would ease the government’s subsidy burden by Rs 12,907 crore per annum at current rates when state-run fuel retailers are losing roughly Rs 10 on a litre. Direct bulk sales account for 18% of the total sales volume of 70 million tonnes. Dual pricing is supposed to limit subsidy to retail consumers.

Oil marketing executives are apprehensive that this would spark a run on their retail outlets. “It would not be possible to monitor where the subsidized diesel is going... anyone can come with a barrel to a pump and buy... a lot of pump sales would start getting diverted,” a top executive with a retailer said.

Once the dual pricing regime kicks in, private refiners such as Reliance Industries and Essar would muscle their way into the bulk sale business by offering discounts. Besides, private refiners have bigger muscles to flex since their refining margins are better than state refiners due to modern plants and coastal locations, bigger leeway in terms of hedging and highsea deals in crude procurement. “We are not opposed to entry of private sector. True, our bulk sale business would become vulnerable. But that would be market dynamics and we can tackle that. We want full reforms and deregulation for all segments. Dual pricing would only skew and confuse the market further without fully resolving the subsidy problem,” the executive said.

Since more than two-thirds of the trains in the country use diesel-fired locomotives (Indian Railways accounts for around 5% of bulk diesel consumption), the move could revive demands for introducing a fuel component in freight if not passenger fares that would fluctuate with the price of diesel.

Bulk users account for more than a fifth of the diesel consumed in the country at present: India consumed 88 million tonnes of diesel in 2011-12 and 64 million tonnes up to November this fiscal.

So bulk purchasers of Diesel will need to pay market price of Rs 60/- instead of  Rs 49/-. Retail purchasers at Petrol Bunk will still pay the subsidized rate Rs 49/- with increase of Rs 0.50 /- per month.

Whats impact  on the over all Diesel deregulation :

We need to know How much of diesel will be consumbed by Govt agencies like Railway, Captive power plants, Defence forces, State Transports, State govt big establishments like Vidhan Soudha, Airports.  As per the details given  in news paper govt agencies will be 5% out of 18% bulk purchasers.

Then I was reading KSRTC strategy to ask buses to fill the diesel from Petrol Bunks instead of  filling in depots to over come this rise. 

What will happen to Traffic Police, State police about their budget allocation for Diesel,  As such state govt do  not allocate more funds for the police whenever price hike in Diesel.  So they will  try to fill  the diesel by different means,  which we know all.

What will happen to Ministery junket travell vehicles ???

Expecting  the black market to  be more pro-active  once this gets implemented.  People will buy at retail and can sell to the bulk users with some margin.

So  how this de-regulation of partial thing will have side effects or main effects


abidpqa's picture

KSRTC versus private buses

86 users have liked.

If we take interstate buses, KSRTC and BMTC, has to pay bulk user price. Private buses pay the retail prices. This is kind of injustice. How can two business targeting same market, have two different conditions. Now, will the private sector supporters use this to prove that public sector is loss making.

srinidhi's picture

till year end only

86 users have liked.

all this price differential is till this year end or even earlier..diesel will be taken off the controlled list and it will be market price next year!

btw read somewhere that 17% of total diesel users are bulk..not a big number are a meagre 5%!

kbsyed61's picture

Skewd logic!

87 users have liked.

The present dual pricing of diesel is certainly a prescription for black marketing. There are better ways to deal with this. One way could be like this:

Bulk users like Railways, PT services, Military etc should be asked to buy at the market rate (Cost plus Taxes, surcharges same as retail rates) directly from the oil companies and not resort to making queue at retail outlets. In the year end claim the refund for taxes, excise, surcharges, import duties and subsidies they qualify for while filing the annual tax returns. comment guidelines

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