In less than 24 hours of bulk diesel pricing being freed from the clutches of government, private sector players have begun preparing a blue print to cash in on this opportunity.
The public sector companies—Indian Oil Corporation (IOC), Hindustan PetroleumCorporation (HPCL) and Bharat Petroleum Corporation (BPCL)—are today meeting almost the entire requirement for bulk diesel users. Of the total diesel consumption of 70 million tonnes per annum, around 20% forms sales of diesel in bulk.
"Users always look for better services and we would be their source for an alternate fuel supply. The state-run oil companies knowing they are market leaders, sometimes provide lousy services. We would fill-in that gap," said a senior executive from a private oil company.
Private fuel retailers said their sale of diesel to retail customers will be a very limited as it has been so far. But when the pricing is market driven in bulk sales, they would like to part-take in the sales pie. Besides, they would also look at improving services for the users, which, they said in many cases by the public sector oil companies is not satisfying.
Bulk customers have two categories—defence, railways and state transport undertakings which form 60% of bulk consumers—and industries like power plants, cement plants and chemical plants etc forming the rest 40% users.
"When it comes to Railways and PSU, it will be difficult for us to penetrate that as infrastructure etc is provided by the PSUs. Besides, they look at supplying fuel at an all India basis. So the balance 40% bulk users will be up for grabs for us and we would not miss that," said the CEO of a private oil company requesting anonymity.
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. "With a 50 paise increase in the retail prices, private players may not be enthused to push sales in the retail business. But when the diesel price is market driven, it certainly will bring in private players into the fold. That is the market force and the PSUs will handle it," said a senior official from IndianOil.
The government, yesterday decided to partially deregulate diesel prices and allowed the oil marketing companies to supply diesel to bulk consumers at market-determined prices. "The private retailers are expected to pose increasing competition for the OMCs in the bulk diesel segment due to complete deregulation of prices for the bulk consumers.
Further, the increase in diesel price is positive for city gas distribution (CGD) players as CNG and PNG were losing competitiveness in comparison to subsidised diesel,” said K Ravichandran, Senior Vice President, Corporate Ratings, ICRA.
In the past, the diesel prices have been controlled by GoI due to sensitive nature of the product as an auto fuel and its impact on inflation. Private fuel retailers—Essar Oil, Reliance Industries and Shell India—form less than 10% of India's fuel retail business.
Government-owned companies—IOC, HPCL and BPCL—dominate the fuel retail business, with more than 90% share.
