In dual pricing, there is always an incentive to divert: R S Butola

Last Updated: Fri, Jan 18, 2013 20:20 hrs

After the capping of subsidised LPG cylinders last September, market pricing for bulk diesel consumers and a periodic hike for individual consumers are being seen as small steps towards complete pricing freedom for oil marketing companies. In an interview with Jyoti Mukul, R S Butola, IndianOil chairman and managing director, admits dual pricing will have its challenges though directionally they will be minimising loses: Edited excerpts:

Since the government has allowed oil marketing companies to increase diesel prices in small amounts, it will take you more than a year to wipe out revenue losses on diesel. Does this help?

A view has been taken to pass on the increase in small hikes ,so it will be quite a while before the underrecoveries will be wiped out. But directionally, we are minimising the gap. Also, we will have the flexibility to adjust by a small margin. Price fixation is a function of international price and dollar parity, so whether we increase it or not will depend on how these two factors play out. It is a positive move and it gives us the flexibility. We will review it every month and if the optimum solution is to do it more often, then we will do that.

Pricing freedom was given to OMCs when the administered price mechanism was dismantled. Do you think the government will allow this phased deregulation in the times to come?
I would not like to guess but now, we have more opportunity for price fixation, which was not there before this decision.

Will differential pricing be difficult to implement, considering it could lead to diversion?
Almost half bulk sales are to the railways, state transport undertakings, defence and other government entities. Besides, some smaller diversified industries also buy directly from us and sometimes there is a tendency on their part to tap cheaper supply. So, the possibility of diversion in a big system cannot be ruled out. In dual pricing, there is always an incentive to divert and this malpractice then becomes a law and order problem.

Will market pricing for bulk diesel sales put you in direct competition with private refiners?
Competition is good for the market. Today, we are competing with other refineries on most petroleum products. We have private sector competition in air turbine fuel. We have an infrastructure in place. The same thing will continue to apply. Diesel will be one more product. We should not be overly worried about this. But as PSUs, we are responsible to so many agencies and have to follow so many procedures which sometimes act against our commercial operations. It is in the nature of our composition to be part of the state.

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