Essar Oil loses more market share with fuel price rise

Losses mount even as price differential widens with state OMCs; has hopes on Parikh report.

A rise in the price of its retailed auto fuels from April 1 to partially offset the rising cost of crude oil has lost more market share for Essar Oil, vis-a-vis the public sector oil marketing companies (OMCs).

Crude oil prices touched an 18-month high of over $87 a barrel last week.

The price increase of Rs 1.50-2 a litre was to partially pass on the impact of the rising price. However, the price at which public sector OMCs sell petrol and diesel to retail consumers is capped by government order; their underrecoveries are compensated (in government bonds and discounts from producers). Essar and Reliance, the two private fuel retailers, enjoy no such privilege.

“Prices have been revised effective April 1 because of the spike in crude prices. The new prices vary, depending on the state. In Gujarat, they are on a par with public sector OMC levels. In other states, they vary from Re 1–Rs 3.50 per litre more than OMC prices for petrol, and from Rs 0.50– Rs 3 per litre more for diesel,” said S Thangapandian, chief executive officer (marketing), Essar Oil. The company currently has 1,339 operation fuel outlets.

This widening of the price differential between Essar’s prices and those of the OMCs has caused the company to lose over 40 per cent of its volume to the latter — Indian Oil, Bharat Petroleum and Hindustan Petroleum. “If a private retailer has lost market share, it would have certainly come to the OMCs. But, we do not have an estimate of the shift,” said an Indian Oil official.

Even after the price increase, Essar Oil faces an underrecovery of around Re 1 on every litre of petrol and diesel it sells. “If the same trend continues, the pricing will have to be fully linked to crude prices,” he said.

Reliance Industries Ltd, which had re-opened 600-odd of its earlier total of 1,430 outlets, refused to comment on its prices and the loss being incurred. Industry sources, however, said RIL outlets are primarily selling diesel at OMC prices, though some also sell petrol at a premium of Rs 2.50 per litre.

Both Essar Oil and RIL were forced to shut their retail operations in early 2008, when crude oil prices reached a high of $147 a barrel. Essar Oil had since reopened all its outlets, after crude prices softened early last year.

RIL moved cautiously and restored operations at only a little over 600 outlets, mostly in western and southern states. RIL had invested Rs 5,000 crore in setting up these outlets.

The three government-owned OMCs currently lose Rs 6.50 on every litre of petrol and Rs 5.50 on every litre of diesel.

Despite the mounting loss, Essar Oil has no plans to shut its outlets. On the contrary, it plans to expand the number from 1,339 to 1,700 by the end of the current financial year. The private retailers are hopeful the government would soon free the prices of petrol and diesel as suggested by the Kirit Parikh committee, to bring in a level field between them and state-owned retailers.