Reliance oil pumps may feed retail

Reliance Industries' proposed package to bail out its struggling fuel pump owners may involve converting a part of its 1,250-station network into warehouses and logistic bases for its nationwide retail venture. This will help the company leverage valuable real estate along highways.

For dealers who choose to sell petrol and diesel""despite losing market share because their fuel is priced Rs 2.50 a litre more than what state-owned oil companies charge""Reliance has offered additional margins on their sales.

For dealers who decide to stop selling fuel because of mounting losses, the company has offered a return on their capital employed.

"Every retail outlet will continue to sell," a Reliance Industry spokesperson said, adding that 50-odd outlets were set to be commissioned. Converting outlets into retail support bases "was a very good option", he pointed out.

Reliance Industries has over three years set up an extensive petroleum retailing network, the largest among private players. The company owns and operates 400 of these, the rest are owned by channel partners.

Since the government does not subsidise fuel sold by private oil companies, Reliance Industries loses Rs 3.37 on every litre of petrol sold and Rs 5.77 on every litre of diesel.

Reliance Industries has now offered dealers the option of continuing to sell fuel at the retail outlet, irrespective of the economics of the business. The company will provide additional margin over and above the normal margin available to the dealer.

At a current pricing differential of Rs 2.5 per litre on diesel and petrol the additional margin will be Rs 500 per kilolitre of diesel and Rs 400 per kilolitre of petrol. This additional margin will vary with the price differential maintained by Reliance Industries with the nearest outlet of a public-sector oil company.

Another option provided to the dealers involves them agreeing to abide by the company's guidance, based on which they may have to suspend fuel sales, continue sales or reopen the outlet if in a suspended mode.

In this case, the company will pay a special support of 12.5 per cent return on investment per annum on the dealers' normative capital expenditure and actual security deposit. If sales of fuel continue or re-start after suspension, the dealer will get the normal margin.

In the past, the company took a number of steps to provide short-term relief to its channel partners, including waiving network use charges and a substantial increase in diesel margins.

The company also agreed to bear the cost of interest on loans for three months and negotiated with lenders to reschedule their loan repayments.