No gain for pvt retailers from market pricing of bulk diesel

The initial euphoria surrounding the freeing of bulk diesel pricing has waned, with both private and state-run fuel retailers saying they're yet to get much benefit, especially the former.

Two months since the decontrol, the private retailers -- Essar Oil, Reliance Industries and Shell -- have together hardly sold 1,000 kilo litres of diesel. And, the state-run outlets have seen quite a few of their bulk customers shifting to using furnace oil (FO) instead of diesel. And, of shifting from bulk purchase to buying from retail outlets.

"The difference between bulk and retail diesel is high. Users are also looking at alternative energy sources," said a senior executive from a private refiner.

Annual diesel consumption is 70 million tonnes. Bulk sales were 20 per cent of this in January; they're now 18 per cent. For February, bulk sales for Indian Oil Corporation (IOC) and Bharat Petroleum Corporation (BPC) have dropped 44 per cent; it dropped 47 per cent for the other state-run oil marketing company, Hindustan Petroleum Corporation (HPC). In retail sales, BPC has seen eight per cent growth; IOC and HPC have seen seven and 5.5 per cent growth, respectively. The three state-run retailers have a little over 90 per cent of the fuel trade.

"Many bulk customers are bringing down their diesel inventory holdings. A few infrastructure companies have also moved back to FO, as this is now decidedly cheaper than diesel. There was a time a year ago when diesel prices were lower than FO and many bulk consumers found it then worthwhile to switch," said N Srikumar, executive director, IOC

Bulk users in the cement, coal, mining, steel and sugar sector, beside state transport understandings (STUs), have reduced demand. Prior to market pricing, the bulk customers were put in two categories. One, of the defence sector, railways and STUs, formed 60 per cent of consumers; industries formed the rest, prior to market pricing for bulk sales.

"While PSUs have lost their market share in bulk sales, it has not gone to the private players. The private players can sell only bulk diesel to the industry at market prices, roughly around Rs 10 a litre more from the retail outlets' prices. So, bulk consumers go to (state-run) retail outlets to take their diesel," said a senior official from a private fuel retailing company. "We were never very bullish on deregulation but positive that at least there was a road map from the government. We are hopeful we will see volumes pick up."