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Fuel retailing: Pump owners want MRP-based regime

Under MRP pricing, the ceiling price would be decided by the OMCs

Ishan Bakshi & Shreya Jai  |  New Delhi 

Image via Shutterstock
Image via Shutterstock

With home fuel prices now aligned with those abroad, fuel pump dealers want the last parts of decontrol phased out. They plan to request the ministry of petroleum and natural gas to shift to a maximum retail price (MRP) regime.

Under MRP pricing, the ceiling price would be decided by the oil marketing companies (OMCs), allowing individual dealers to set a price after factoring in the local tax regime, operational efficiency, and other considerations. “If an MRP is set on petrol and diesel prices, any dealer would try and bring efficiency in the stipulated bracket. The move would invite competition in the retail space,” said Ajay Bansal, secretary-general, Federation of All India Petroleum Traders.

With a sharp fall in crude oil prices, refining and marketing companies are benefiting hugely but consumers haven’t benefited much, say fuel retailers. They contend on the 14 occasions that domestic prices of petrol and diesel have been cut in the past year or so, public sector retailers have suffered losses. There are about 53,000 dealers, with an average monthly stock of 25,000 litres, a mix of petrol and diesel. They'd have bought at higher prices and then have to see the sale price cut.

Not quite so, says a senior analyst at a credit rating entity. He contends that close to every cut in retail prices, dealers lower their inventory to minimise losses. Even so, there is some loss.

The margin of retail outlets selling petrol and diesel of the three state-owned OMCs —Indian Oil, Hindustan Petroleum, and Bharat Petroleum — is less than those operating for private companies Reliance Industries and Essar Oil. For every litre sold by the dealers for the state-owned OMCs, the margin is Rs 2.25 for petrol and Rs 1.18 a litre for diesel. In the private space, the margins are negotiated on the basis of how much the dealers are offering to their consumers and other factors.

“Private companies, despite having 0.7 per cent market share, are slowly taking the bulk sale market. Once they expand, they would soon be eating into the retail business,” said Bansal.

Against 53,000 public sector retail outlets, there are 2,000 for private companies — the latter re-opened after the government announced decontrol in 2013. The private companies ate away close to 17 per cent market share of the state-owned OMCs when the first decontrol of the oil market was initiated in 2004-05, but this was scrapped in a year.

“Even this time, if the price of crude oil spikes, the government could roll back the decontrol. This uncertain regulatory environment is preventing the private companies from expanding aggressively,” said an expert.

Since full decontrol, private companies have been slow on their retail strategy. Most private dealers are active mostly in the bulk diesel segment. Private refiners themselves are eyeing big fuel buyers such as Indian Railways and the airlines. Land availability is another big hurdle. Over the years, prime sites have gone to the state units’ outlets.

Marking a shift in marketing strategy, the oil companies are now tendering for only ‘dealer-owned, dealer-operated’ ROs. The ‘company-owned, dealer-operated and ‘company-owned, company-operated categories have been phased out. This means a dealer would have to get the land, make all the investments and still get the same margin as all others would get, said a fuel station owner here.


REMAINING PARTS OF DECONTROL
  • With home fuel prices now aligned with those abroad, fuel pump dealers want the last parts of decontrol phased out
  • They plan to request the ministry of petroleum and natural gas to shift to a maximum retail price regime
  • Under MRP pricing, the ceiling price would be decided by the oil marketing companies (OMCs)

First Published: Wed, September 16 2015. 00:32 IST
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