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Market reality: Government slips on dual pricing for diesel

The government had on January 17 implemented the dual pricing system under which consumers buying directly from fuel retailers have to pay full market price, while private consumers continue to pay the subsidized price at petrol pumps.

, TNN|
Updated: Feb 12, 2013, 02.02 PM IST
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(This story originally appeared in on Feb 12, 2013)
NEW DELHI: The government’s move to prune diesel subsidy by implementing a dual-pricing system has proven to be too-clever-by-half, with commercial consumers simply tanking up at petrol pumps instead of buying directly from state-run fuel retailers at full market price.

The government had on January 17 implemented the dual pricing system under which consumers buying directly from fuel retailers have to pay full market price, while private consumers continue to pay the subsidized price at petrol pumps. There is a difference of over Rs 10 per litre between the two prices.
Latest industry sales data, however, show the state fuel retailers losing direct, or bulk, sale business by as much as 13,000 kilolitres a day since the dual pricing order was issued on January l7. At the same time, retail sales have recorded a growth of 11%-13 %, up from 5%-8 % earlier. At current prices , a back-of-envelope calculation shows a switch of 13,000 kl per day would entail daily subsidy burden of Rs 14 crore.

“Whatever business is going out of bulk sales is showing up at retail outlets... who wants to pay Rs 10 a litre more when cheaper options are available legally. In effect, a majority of what was meant to be sold at market price is finding its way back into the government’s subsidy bowl,” a senior executive working with market leader IndianOil said.

Diesel consumption at present stands at some 70 million tonne a year. About 12 million tonne of this, or roughly 18%, is sold to bulk consumers. The railways and defence forces together make up the biggest bulk buyers, consuming some 3 million tonne a year. Besides, power, cement and other core sector firms, fleet operators and state transport utilities make up the rest.

“It is the latter category of direct consumers such as state transport corporations and fleet operators who are making the switch... We are also seeing this trend with other bulk consumers , except the railways and defence who cannot drive up to a petrol pump,” a field executive with Hindustan Petroleum said.
In effect then, only the railways and defence are stuck with the government’s decision and have to pay more for diesel, while others take the escape route. Last week, under political pressure the government exempted fishermen also from paying market price, driving away a substantial chunk of market-price sales.

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