With dual pricing for diesel in place, the oil marketing companies are looking at ways to stop bulk diesel users from availing of the fuel from retail outlets. Indian Oil corporation (IOCL), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL)-nt the government to put in place certain regulations for the same.
"We anticipate that bulk diesel users, may frequent retail outlets to buy diesel and we cannot stop them. So a clear distinction on the two consumers is needed," said the director marketing of one of the oil marketing companies.
Last week the government allowed the oil marketing companies to supply diesel to bulk consumers at market-determined prices. This, the oil marketing companies fear, may divert users to retail outlets. In the past, the diesel prices have been controlled by the government due to sensitive nature of the product as an auto fuel and its impact on inflation.
Paying market determined prices for diesel in bulk means the fuel will come dearer by over Rs 10 per litre to the users. This may prompt users to flock to the retail outlets.
Of the total diesel consumption of 70 million tonnes per annum, bulk diesel sales for the industry is close to 12 MT and under-realisation per litre is Rs 10.31 paise per litre. Bulk sales happen directly from the oil depots of the oil marketing companies. If bulk users buy from retail outlets, it may be illegal.
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. RK Singh, CMD, BPCL said, "There are some bulk diesel users who take fuel away from retail outlets in barrels and that should be curbed."
Fuel retailers however, are awaiting clarity from the public sector oil marketing companies if they would be allowed to continue sale of diesel in bulk to small industry users. "At present, small industry users can produce relevant papers and buy diesel from the retail outlets. The volumes can be anywhere upwards of 1000 kilo litres," said Ajay Bansal, General Secretary of the Federation of All-India Petroleum Traders.
Oil companies though they never wanted market determined prices for bulk diesel sales, realisations from the same would help as subsidy from government always came with a lag.
"Given subsidy never came in time and we borrowed money from the market, we lost interest on the borrowed money. That became a cost to us. Selling diesel in bulk would provide some cushion to oil companies," said a senior executive from an oil marketing company.
Allowing sales of diesel in bulk at market price has opened the entire segment for competition. The threat is largest to IndainOil Corporation which holds 78 per cent of the bulk diesel sales market.
The private retailers are expected to pose increasing competition for the OMCs in the bulk diesel segment. Though the infrastructure and spread that OMCs have is an advantage to them, there are certain pockets where private fuel retailers can score, said industry players.
Besides, if private fuel players give discounts to bulk diesel customers, OMCs may have to toe their line. "If private players discount the fuel, and if we can afford it too, we may have to discount our product. This may however, bring down our realisation. We have to match every aspect of marketing to retain our share," added the director, marketing.
Private fuel retailers on the other hand have already formed marketing teams to cash in on the opportunity.
"We have already started meeting the customers and made the offers, by the end of this month we should be able to make some sales. There are places where we will be able to be competitive than the PSUs specially in and around our refinery areas," said the CEO, Marketing of a private fuel retailing company.
Private fuel retailers—Essar Oil, Reliance Industries and Shell India—form less than 10 per cent of India's fuel retail business. Essar Oil and Reliance Industries have refineries in Gujarat from where these players can push bulk sale of diesel.