The government is planning to probe into diesel imports by private firms that had been given a license to retail the imported fuel but are selling it to industrial and bulk consumers.

"We had allowed them for marketing (the imported fuel) through retail outlets. But if they are selling to bulk consumers, the matter needs to be examined," highly placed officials in the ministry of petroleum said in New Delhi on Tuesday.

Essar Oil, which was allowed to import petrol and diesel to stock its 1,700 petrol stations in the Exim Policy for 2003-04, has already imported 23,000 tonnes of diesel and is planning to import another 21,000 tonnes in October for sale to bulk industrial consumers.

"The (petrol and diesel) imports are allowed for those who have secured a transport fuel retailing license. We allowed import as we wanted competition in retailing and so the imported fuel was meant only for marketing through retail outlets," sources said.

Essar Oil's imported diesel is cheaper than that of the public sector oil firms who are still following the administered pricing norm of averaging out the freight cost to equalise the selling prices at different locations.

Sources said the imported fuel was making a dent into the profitability of the public sector oil firms as 3.5 million tonnes of diesel sales on the coastal locations were under threat.

Essar Oil had pleaded for being allowed to import petrol and diesel during the period of construction of its 10.5 million tonnes refinery at Vadinar.

The company officials were unavailable for comments.

Essar Oil was one of a few companies that fulfilled the Rs 2,000 crore (Rs 20 billion) investment criteria for securing a license to retail transport fuels in the country.

The company was planning to sell 100,000 tonnes of imported diesel this year by tapping bulk consumers in and around Mumbai. Its diesel was about Rs 400 per kilolitre cheaper than the price offered by the state-run oil firms.

In a major boost to oil majors aspiring to tap into the world's seventh largest retail oil market worth $15 billion a year in sales, the Export and Import Policy for 2003-04 had decanalised import of petrol and diesel, allowing firms holding marketing/retail license to import the two fuels.

The government has till now granted license to Reliance Petroleum, Essar Oil, Oil and Natural Gas Corporation and Numaligarh Refineries Ltd to market the transport fuel.

The world's third largest oil group Royal Dutch/Shell too has been given a conditional authorisation to set up 2,000 petrol stations.

Though crude oil imports had been decanalised last year, petro product imports remained under the canalised category as imported petrol and diesel could be sold at a cheaper rate under the given duty structure.