OMCs may recoup card charges at motor fuel outlets through price hikes

Decision to spare dealers from MDR charges has had an impact on private retailers

The past fortnight saw uncertainty over who bears the cost of card transactions at fuel retailing outlets for motor vehicles.

With the government directive for banks and oil marketing companies (OMCs) to decide among themselves, analysts do not see the merchant discount rate (MDR) as a great concern for the latter.

Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation expect the charge to be nominal enough to be recovered through price increases in the next few months. Private fuel retailers, Essar and Reliance, would take a bigger hit. Digital transactions at fuel outlets have risen to Rs 480 crore daily, from Rs 150 crore in the pre-demonetisation days, Business Standard reported a week before. That rise had hit a rough patch, with banks proposing to charge dealers an MDR on card transactions.

“The likely impact might be 1.5-2.5 per cent of the annual earnings before interest, tax, depreciation and amortisation for oil companies, assuming OMCs are expected to share half the MDR charges,” said Nitin Tiwari, analyst with Antique Stock Broking.

An analyst from a domestic brokerage said, “Calculated at 0.5 per cent of the total value of fuel sold, it will be 30p a litre. It is not very difficult for OMCs to pass on a 30p difference. This will be gradual, through multiple price hikes in the next few months, but can be recovered.”

Analysts add that the three government-owned OMCs will need to mind the competition from private fuel retailers while taking these price hikes.

The decision to spare dealers from MDR charges has had an impact on the private retailers. “Dealers are being compensated for the MDR charges through various other methods, including further discounts and or offering lower fuel prices at some Reliance Retail pumps,” said a source.

Reliance outlets were earlier also offering a Rs 1 a litre discount to market prices, to make up for the 0.75 per cent discount offered by public sector outlets on card transactions. An e-mail query sent to Essar Oil and Reliance Industries remained unanswered.