New formula to protect fuel retailer margins

Associations claim they have lost Rs 400 cr since June 15 when daily price changes was introduced

Oil marketing companies (OMCs) such as Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL), and Bharat Petroleum Corporation (BPCL) are considering a revision in the formula to decide margins of dealers, to insulate them from fluctuations because of daily changes in fuel prices.

Daily pricing changes was introduced on June 15. Associations of fuel retailers claim about 53,000 outlets of the public sector OMCs have lost Rs 400 crore since then. Several of these associations are threatening to go on an indefinite strike from August 1.

“We have mooted a new formula through which inventory will be owned by the company in petrol and diesel, similar to the case of compressed natural gas and liquefied petroleum gas. The new margin model will take into account of our increased operating cost, value of net fix assets including land and evaporation loss,” Ajay Bansal, president, All India Petroleum Dealers’ Association, told Business Standard.

An official in the know confirmed an idea to revise the formula was mooted and it was under the consideration of the petroleum ministry. “We will soon take a call on this,” he added, without divulging any details.

Dealers claim that the purchase price and selling price for them are different because of the daily changes. They buy fuel in advance at a certain price, but have to sell it at another price that might be lower.

“We have so far suffered a loss of Rs 400 crore on our margins because of daily pricing changes; hence, some insulation is required,” Bansal added.  

Of the total 59,591 retail outlets in the country, 54,607 are under PSUs, while Essar (3,499), Reliance Industries (1,400), and Shell (85) run the remaining outlets. While the three PSUs have some company-owned company operated-outlets, the rest are dealer-run.

According to dealers, despite intervention by the Petroleum Minister Dharmendra Pradhan, OMCs were yet to take a call on the margins.

“Several associations, including some in Punjab, Haryana and Kerala, are going to stop purchasing fuel soon. We are left with no choice but to go on an indefinite strike fromAugust 1, if companies fail to take a call on this. Daily price change is wiping out our margins,” said B T Ram Kumar, joint secretary of the Consortium of India Petroleum Dealers.

Bansal said dealers across the country were facing a daily loss of about Rs 25-30 crore.

IOC is monitoring the daily price revision round-the-clock through 87 control rooms to offer quick answers to queries from the field.