oil prices: How do you fix price, what’s the logic behind retail and bulk rates difference, HC asks oil firms

The Kerala High Court on Tuesday asked the state-run oil marketing companies (OMCs) what was the reason for a difference in the retail and bulk purchase rates of fuel supplied by them and what was the price fixation mechanism adopted by them.

“What is the logic or reason for the difference in prices of retail and bulk purchase of high speed diesel? How do all three OMCs decide the prices? Do they sit together? On what basis or based on what material do they fix the prices? Give us the material for that if you can,” the high court asked the companies.

These queries were put to the OMCs by a bench of Justices C S Dias and Basant Balaji during the hearing of their appeals challenging a single judge interim order of April 13 directing them to provide high-speed diesel (HSD) to the Kerala State Road Transport Corporation (KSRTC) at retail rates instead of the higher bulk purchase price.

Answering the queries of the court, the OMCs said that when global fuel prices increased drastically this year, they decided not to implement a steep increase in retail prices as it could have led to public unrest.

Therefore, in order to blunt the impact of the increase in fuel prices on the general public, it was decided to gradually hike the rates over a period of time, the OMCs told the court.

Regarding price fixation, the companies said that several parameters, like global crude prices, expected future crude prices, local taxes, transportation costs, were considered while fixing the rates which were slightly different for each OMC.

The OMCs, represented by senior advocate Parag Tripathi, said that the single judge did not consider that price fixation was a policy matter and a discretion of the companies while granting the interim relief to KSRTC and terming the rates as “exorbitant”.

The single judge had prima facie observed in the order that the price charged by OMCs from KSRTC was “highly exorbitant” and that if the rates levied were pursuant to any agreement, the same was “an extremely unconscionable term of bargain”.

The interim order had come on a plea by KSRTC challenging the OMCs decision to charge a higher rate from bulk purchasers of HSD as compared to retail prices of the fuel.

In their respective appeals, the OMCs — Indian Oil, Bharat Petroleum and Hindustan Petroleum — have contended that the single judge also did not consider their argument regarding non-maintainability of plea as it was a contractual issue and that there was an arbitration clause in their agreement.

The OMCs also told the bench that KSRTC cannot ask for retail rates when it was enjoying the benefits of door step delivery of the fuel and 45 days credit under the bulk fuel purchase agreement with them.

The OMCs also contended that KSRTC was till January this year receiving fuel at prices which were lesser than the retail rates and it started complaining the moment the situation changed.

The companies also contended that they were not against supplying HSD to KSRTC and claimed that the latter was not purchasing it.

They also alleged that KSRTC owed them several crores of unpaid dues for the fuel supplied to it.

Opposing the OMCs plea and their contentions, KSRTC — represented by senior advocate Dushyant Dave and advocate Deepu Thankan — argued that what the oil companies were doing was “unconstitutional and arbitrary”.

Dave argued that OMCs conduct towards KSRTC amounts to “hostile discrimination by one public sector undertaking (PSU) against another”.

He said that KSRTC was not asking for any discounted rates as it was receiving in the past and was only asking that it be charged competitive market driven prices as was provided for in the contract with the OMCs.

The market prices were the retail rates of HSD and if private bus operators, the competitors of KSRTC, were getting fuel at those rates, then the corporation should too, Dave argued.

The court pointed out that KSRTC was enjoying the benefits of doorstep delivery as well as 45 days credit for making payment, which were not available to those purchasing fuel from retail outlets.

The bench also pointed out that KSRTC had in the past got fuel at much lesser rates than the retail prices.

Dave responded that KSRTC was no longer purchasing fuel as a bulk purchaser as it cannot afford to do so any longer.

He also said that the transport corporation’s financial burden, on account of the increased fuel prices, was increasing at the rate of Rs 85 lakh per day and it cannot continue to sustain its operations for long.

He contended that the OMCs decision was also against general public interest as KSRTC was providing a public service.

The bench after hearing arguments from both sides for over two hours reserved its judgement on the OMCs appeal and said that verdict may be expected by May 2.