Essar asks retail outlets to reduce sales as losses mount

Essar Oil Ltd has shot off a letter to its 504 retail franchisees, asking them to cut down sales by one-third. In the last four months, the company has accumulated Rs 60 crore losses from its retail operations.

According to a top executive, Essar Oil is losing between Rs 1.2-1.5 crore everyday as it has been paying Rs 3 more for purchase of one litre of petrol and diesel from Mangalore Refinery and Petrochemicals Limited (MRPL), run by Oil and Natural gas Corporation Limited (ONGC) in comparison to the retail price it has been offering for petrol and diesel.

A N Sinha, Managing Director of EOL, confirming the development, told Business Standard on Thursday, "We have written a letter to our retail outlets across the country a few days back asking them to reduce retail sales of both petrol and diesel as we are incurring heavy losses. We have also assured the franchisees who run the Essar Oil outlets that we would be compensationg them for the losses. But it seems they are not too keen on cutting down sales in fear of losing customers."

Essar Oil, which buys its entire chunk of petrol and diesel from MRPL paying the Refinery Transfer Price (RTP), has already raised the matter with Petroleum Minister Manishankar Aiyar, requesting him to hike the retail price of petrol and diesel.

Sashi Ruia, chairman of the Rs 20,000 crore Essar Group himself, had a meeting with Aiyar on Thursday.

Essar, a fledging company in oil marketing business, also said that while it did not wish to comment on the Government policy, it had regulated sales to franchisees in a manner that would reduce its losses and yet not starve its retail outlets completely.

"On May 19, in a communication to its franchisees, Essar Oil has indicated that is forced to regulate supplies to them in order to pare its losses and yet maintain fair supply to all its consumers. Since this could mean reduced income for the franchisees, Essar is working out plans to keep them protected to the extent possible," said an official spokesperson of the company.

Essar Oil, which is optimistic of commissioning its refinery at Vadinar in Jamnagar during the second half of 2006, has also urged the govermnment to review the high burden of taxation on the petroleum industry and also give freedom to companies to align the retail prices with the international markets.

"While the government run petroleum majors are in a position to absorb losses due to this import price parity and also RTF, private sector companies like Essar, which do not have their own refineriesy, would have no other way but to keep incurring losses," said an industry expert.

Essar Oil sells 2,000 kilo litres of petrol and diesel everyday through its 504 retail outlets "" all run by franchisees.

However, another private sector major in petroleum retailing, Reliance Industries would not face the heat as its outlets are not run by the franchisees, but owned by the company itself.