Comptroller & Auditor General (CAG) has criticised the State-run oil companies for using a pricing system that helped private refiners gain Rs 10,196 crore in five years. The report has also censured the Union Oil Ministry for causing a revenue loss of over Rs 1,56,000 crore over the same period. The controversial formula, which also applies to retail buyers at petrol pumps, makes diesel about Rs 2 per litre costlier because buyers are forced to pay additional costs that companies do not incur, such as customs duty. As a result, state firms also gain handsomely from sales to retail customers, industry executives say.
Oil firms pay no customs duty on crude oil, and do not import diesel. But the Delhi retail price of diesel at Rs 51.40 includes Rs 1.21 of customs duty. Petrol is priced similarly. This is an additional benefit for state refiners when they sell to customers, and for private refiners such as Reliance Industries and Essar Oil when they sell to state firms.
Since state firms dominate the retail market, their gains from charging additional money to retail customers would be enormous. CAG's draft report said companies suffered a revenue loss of Rs 96,231 crore for 2009-10 and 2011-12 as kerosene and cooking gas subsidies were not restricted to the poor. The auditor also observed that the delay in charging full market rates for diesel to bulk buyers, such as the railways, led to a revenue loss of Rs 59,073 crore in five years.