Essar Oil gets bullish on distribution, to add 50 more outlets

Emboldened by the steps taken by the government to get diesel prices in sync with the crude price, private refiner Essar Oil is planning to ramp up its retail network by adding around 50 new franchisees and five company-owned outlets this fiscal, a senior official has said.

"We will add 40-50 franchisees by the end of the fiscal if the diesel prices continue to get increased and the differential between the state-owned oil marketing companies and private players' prices goes down," chief executive for marketing S Thangapandian told reporters over the weekend.

That apart, the company is also planning to open at least five outlets owned and operated by it.

The government move -- the last of the price hike of Re 1 was last Friday -- also makes the company bullish on having its own outlets, he said.

It is targeting to open up to 15 stations in the Western and Southern regions, he said, adding that at least five of those will come up this fiscal itself.

Each outlet will entail an investment of up to Rs 2.5 crore for the company, he said.

The company has 1,400 operational outlets at present out of a total of over 1,500, he said, adding it is even ready to double the number of outlets if the diesel price is brought at par with the market realities by the state-run oil marketing companies.

Private refiners like Reliance, Essar Oil and Shell had burned their fingers in the distribution space earlier as government refused to hike diesel and petrol prices between 2010 and 2012 as the crude prices shot through the roof and the retail price difference between them and the PSUs widened massively.

The state-run oil firms had been mandated in January to raise prices by up to 50 paisa a litre every month till the entire under-recoveries on the fuel are wiped out, which is now under Rs 3 a litre, following the sharp fall in crude prices in recent months.

Though petrol prices were deregulated in June 2010, they rarely moved in tandem with the market cost. However, since January, they have more or less moved in step with international prices with oil firms revising rates every fortnight.

Before the hike, it was estimated that oil firms were projected to lose Rs 84,475 crore on diesel and cooking fuel this fiscal.

Thangapandian said with the increase of Re 1 per litre the differential between the selling costs of state-run oil marketing companies and private players like Essar has come down to Rs 2, and added he expects it to reach actual market price by the end of September.