One month after diesel decontrol, OMCs in wait-and-watch mode

Private players RIL and Essar are yet to start retailing diesel; for PSU oil companies, it is business as usual

A month after diesel prices were market linked, it is business as usual for the oil marketing companies with the private sector petroleum companies yet to re-enter the market.

On October 18, the government market linked the diesel prices opening up the fuel retail sector which was so far largely a preserve of the three state run oil marketing companies (OMCs)---- Indian Oil Corporation, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited.

After a month, OMCs said they would see a visible impact of the deregulation on their sales volume only two-three months down the line when private fuel retailers re-open most of their outlets.

Of the private players, Reliance Industries has one of the largest network with state-of-the-art infrastructure. It is, however, still negotiating with its retailers for re-starting their outlets. The retailers are demanding a higher commission.

"Against our expectation, there is not much impact that we have seen. However, we have been informed that private fuel retailers would be re-opening their fuel retail outlets in the next few months. We may see some possible impact on our sales then," said a senior official from Hindustan Petroleum Corporation Limited.

Essar Oil with 1400 operational retail outlets currently, is expecting a gradual pick up in diesel sales from its outlets. The company had been selling only petrol through its outlets till the deregulation. It will be selling diesel from its outlets in a phased manner.

A senior official from IndianOil Corporation said though there was no impact of diesel deregulation so far, it is monitoring the market situation.

The three oil marketing companies reported a mixed set of numbers for the September quarter. While muted growth impacted their overall profitability, lesser interest cost burden following gradual diesel price deregulation and timely compensation by the government towards under-recovery in retail sales, provided some comfort.

Overall operational profitability remained under pressure. IOC slipped into the red with a net loss at Rs 899 crore against net profit of Rs 1,684 crore a year-ago and BPCL saw net profits halve to Rs 464 crore. A low base in the year ago quarter and over-recoveries, helped HPCL post a strong growth of 16% in net profit.

The government also more than doubled the excise duty on petrol and diesel on Thursday to Rs 2.7 per litre and Rs 2.96 per litre, respectively. Currently, the OMCs are making over-recoveries of Rs 2 a litre on petrol and diesel each. The excise duty hike will partially reduce that.

However, for the benefits that would accrue from diesel deregulation, analysts remain positive on the OMCs.