Private fuel retailers oppose govt's move on state oil firms
Essar Oil, Reliance Industries and Shell India form less than 10% of fuel retail business
Private fuel retailers have given a thumbs down to government's move of allowing state-run oil companies to raise price of diesel from time to time.
Though a diesel price revision by public sector companies will be followed by private companies, these players say government will allow two or three token price hikes and later forget about it as elections will be round the corner.
Private fuel retailers—Essar Oil, Reliance Industries and Shell India—form less than 10% of India's fuel retail business. Government-owned companies—Indian Oil, Hindustan Petroleum Corp and Bharat Petroleum Corp—dominate the fuel retail business, with more than 90% share.
"Currently the under-recovery on diesel is around Rs 9.6 per litre. A minor Rs 1 or 2 hike will not help private fuel retailers as they would still be bleeding. Everybody knows the government will not go in for a Rs 10 hike to cover under-recoveries. Only government knows what it has done," said a senior executive from one of the private fuel retailing companies.
Diesel is the mainstay for all fuel retailers. Private oil marketing companies have invested substantially in setting up their retail outlets, but due to lack of a level playing field, these assets were left underutilised.
"This move vindicates the stand of private players who have chosen to remain in this business despite government's apathy. This provides us hope that complete deregulation will take place someday. Till then we shall continue as we have been in this business," said the CEO of a private fuel retailing company, requesting anonymity.
Essar Oil which has around 1,406 retail outlets, has only 1,200 retail outlets operational. Post today's decision however, the company may open its other 200-odd outlets.
Though Essar Oil MD & CEO, L K Gupta welcomed the move, he said, "The need of the hour today is complete deregulation of fuel prices and allow market forces to set the benchmarks in tandem with global oil prices."
"Once price parity is reached between retail and market prices, it will not only benefit consumers by providing them choice, but also help in demand management of diesel . It will also be good for the economy, since a ballooning subsidy bill was threatening to derail the overall fiscal discipline," Gupta added.
Essar Oil, compensates its dealers by providing a 12.5% fixed rate of return on their investment. Currently, it is able to break-even in its retail business. While it sells petrol at the same rate as that sold by public sector units, expect for its fuel stations in the North-east, it sells diesel at a price differential of Rs8-10 a litre, compared to the rates of public sector units. Essar Oil had last recorded profits in its retail business in 2010.
Mukesh Ambani owned Reliance Industries which has around 1,470 retail outlets, currently runs only 450 of those.
On the other hand, Shell India, the only international energy company licensed to build and operate around 2000 fuel retail outlets in India, runs around 35-40 retail outlets across six states. Shell India had earlier told Business Standard that though it continues to invest, the flow is slow, anticipating a clear policy on selective subsidies. This hits revenue and its ability to grow.
The government had invited private companies into the market and stated eligibility for a marketing licence was subject to an investment of Rs 2,000 crore in India’s oil infrastructure. "After the investments was made, the government has not ensured a level playing field by controlling the pump prices of public sector companies," Shell India had told Business Standard earlier.
"A lot will depend on the actual price hike that will take place. A key reason for this announcement could be the pressure government is facing from rating agencies and the fuel subsidies which are a drain on India's finances," said a senior analyst from a broking firm.