With dual pricing for diesel in place, oil marketing companies (OMCs) are looking at ways to stop bulk diesel users from securing the fuel from retail outlets. The three public sector OMCs — Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation Limited — want the government to put in place regulations for this.
“We anticipate bulk diesel users may frequent retail outlets…and we cannot stop them. So, a clear distinction between the two consumers is needed,” said the director (marketing) of an OMC.
Last week, the government had allowed OMCs to supply diesel to bulk consumers at market-determined prices. This, the OMCs fear, might divert users to retail outlets. In the past, diesel prices have been controlled by the government due to the sensitive nature of the product as an auto fuel and its impact on inflation. Paying market-determined prices for diesel in bulk means the price would be higher by about Rs 10/litre. This may prompt users to flock to retail outlets.
Of the total diesel consumption of 70 million tonnes (mt) a year, the industry’s bulk diesel sales stand at about 12 mt; the under-realisation is Rs 10.31 per litre. Bulk quantities of diesel are sold directly from the depots of OMCs.
There are two categories of bulk customers — defence and railways & state transport undertakings (which account for 60 per cent of bulk consumers) and power plants, cement plants and chemical plants.
Fuel retailers are awaiting clarity from the public sector OMCs on whether they would be allowed to continue sale of diesel in bulk to small industry users. “Currently, small industry users can produce relevant papers and buy diesel from retail outlets. The volumes can be anything higher than 1,000 kilo litres,” said Ajay Bansal, general secretary of the Federation of All-India Petroleum Traders.
R K Singh, chairman and managing director of Bharat Petroleum Corporation, said, “There are some bulk diesel users who take fuel away from retail outlets in barrels and that should be curbed.”
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Oil companies aren’t in favour of market-determined prices for bulk diesel sales. They say good realisations from these sales would help, as subsidy from the government always comes with a lag. “Given subsidy never came on 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 OMC executive.
Allowing sales of diesel in bulk at the market price has opened the entire segment to competition. The threat to Indian Oil Corporation, which accounts for 78 per cent of the bulk diesel sales market, is the greatest.
Private retailers are expected to provide increasing competition to OMCs in the bulk diesel segment. Though the infrastructure and spread of OMCs are advantages for them, private fuel retailers can score in a few segments, say industry players. Besides, if private fuel players give discounts to bulk diesel customers, OMCs may have to follow suit.
“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,” said the director (marketing.
Private fuel retailers have already formed marketing teams to cash in on the opportunity. “We have already started meeting customers and have made offers; by the end of this month, we should be able to make some sales. There are places where we would be able to be more competitive than public sector undertakings, especially in and around our refinery areas,” said the chief executive (marketing) of a private fuel retailing company.
Private fuel retailers---Essar Oil, Reliance Industries and Shell India---account for about 10 per cent of India’s fuel retail business. Essar Oil and Reliance Industries have refineries in Gujarat, and these companies can push bulk diesel sales from that state.