The Centre has declared a cap on refinery margins in an effort to offset losses on domestic fuel sales according to reports. This development comes after the Indian government had implemented a windfall tax on fuel exports.
The Iran-Israel-US conflict in the Middle East had lead to an increase in international oil prices which contributed to record losses on petrol and diesel sales due to retail rates not changing with them. Refineries saw bumper margins due to this selling their products at an imported cost irrespective of the retail price freeze.
Indian authorities at the national level imposed a Special Additional Excise Duty (SAED) with regards to diesel and aviation turbine fuel (ATF) exports due to its endeavour to keep a check on windfall gains by refiners and increase domestic fuel availability in the midst of tight global markets.
Refining margins see a cap at $15 per barrel. earnings above this level being taken as a discount on the fuel sold to state-run marketing firms, leading to the transfer of excess gains to offset retail losses according to sources.
The oil marketing companies (OMCs) on March 26 fixed rates for petroleum products that are at a discount of up to Rs 60 per litre to their imported cost. OMCs have decided to fix a discount on the refinery transfer price (RTP) - the internal price at which refineries sell fuel to marketing arms - to effectively pay refineries less than the import-parity cost of the fuels like petrol and diesel.
For the second half of March, a discount of Rs 22,342 per kilolitre (Rs 22.34 per litre) was fixed on diesel to bring down the RTP of Rs 85,349 per kl to Rs 63,007 per kl.
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For the first fortnight of April, the discount on diesel has been fixed at Rs 60,239 per kl to lower RTP from Rs 146,243 per kl to Rs 86,004 per kl. On ATF, the RTP has been slashed to Rs 76,923 per kl from Rs 127,486 per kl after considering a discount of Rs 50,564 per kl.
The RTP for kerosene after a discount of Rs 46,311 per kl has been fixed at Rs 77,534 per kl from Rs 123,845 per kl, they said.
Traditionally, petrol and diesel in India have been priced on an import parity basis, meaning the fuels are valued as if they were imported, even though it is primarily crude oil that is brought into the country and refined locally. Refinery transfers of these products to oil marketing companies were based on import parity price (IPP) until June 2006, after which the government adopted trade parity pricing (TPP) - a benchmark that assigns 80% weight to import parity price and 20 per cent to export parity price.
This pricing protected refinery margins, particularly of standalone refiners who didn't have the cushion of marketing margins on petrol and diesel, whose pricing was deregulated by the government in 2010 and 2014, respectively.
Despite being freed, petrol and diesel prices have not exactly moved in line with cost and have been on a freeze since April 2022, with OMCs absorbing losses when crude oil prices rise and making bumper profits when rates fell.
The discount on RTP comes as under-recoveries or losses on petrol and diesel have widened, sources said adding unlike cooking gas LPG, the government does not compensate OMCs for losses on auto fuels.
Ministry of Petroleum and Natural Gas in a post on X on April 1 had stated that, "With global petroleum prices up by up to 100 per cent in the last one month, PSU OMCs are incurring under-recoveries of Rs 24.40 per litre on petrol and Rs 104.99 per litre on diesel at retail selling price (RSP) level as on 01.04.2026."
OMCs feel the freezing RTP would effectively distribute the financial burden across the refining ecosystem, but analysts say it could disproportionately affect independent refiners with limited downstream marketing exposure.
Also, it will distort the commitment of market price to standalone and private refiners, sources added.
(With PTI Inputs)
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