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Mukesh Ambani-controlled Reliance Industries Ltd (RIL) is said to be preparing the ground to restart its 1,400-odd fuel retailing outlets in the country. According to RIL fuel retailers, the company has begun gauging its dealers' preparedness and willingness for this.
Dealers said the company was setting a tentative deadline of September 2014 to reopen the outlets. "Last week, RIL officials met us to find out how prepared we were to reopen the stations," said an Ahmedabad-based RIL fuel retailer who did not wish to be named.
The company did not reply to an email sent last week. But an RIL official said: "Given the new government's positive outlook towards diesel deregulation, even if staggered, reopening the fuel retail outlets is very much on the cards."
RIL had in May 2008 closed its fuel retail outlets due to mounting losses, since it was selling fuel at rates much higher than the subsidised prices of state-owned oil companies. According to industry players, the company commands a share of less than 0.5 per cent in the fuel retail market.
Another retailer said: "We are willing to reopen the petrol pumps, subject to payment of damages to cover the losses we incurred on the RIL dealership all these months."
In 2010, around 75 fuel retailers in Gujarat had decided to exit the RIL dealership and sought reimbursement of the investment made. The dealers had said they invested between Rs 2 crore and Rs 4 crore in each outlet. Depending on the location, the cost of land was between Rs 1.5 crore and Rs 3 crore, with another Rs 30 lakh to Rs 1 crore thrown in for maintaining services at the outlets.
Of the 225 retail outlets that RIL had in Gujarat, 150 were dealer-owned, dealer-operated (DODO) or company-owned, dealer-operated (CODO). The remaining 75 were company-owned, company-operated (COCO). At CODO outlets, the company takes care of the cost on account of services.
Last week, rating agency Moody's said diesel prices were likely to be completely deregulated over the next 12 months, as monthly increase in rates bridged the gap between cost and retail price. It said it expected the new government to increase the retail selling prices of controlled fuel products - kerosene and liquefied petroleum gas (LPG) - to help control the subsidy burden.
The government, in its view, is likely to go for staggered increases - like the monthly 50-paise-a-litre increase taking place in diesel prices for some time. Though a one-time price increase will have a more immediate impact on reducing the burden, it would also be more challenging to push through, given the need to control inflation.
"We also expect the government to be in a position to completely deregulate diesel prices over the next 12 months, as retail prices move closer to international market rates," said Vikas Halan, Moody's vice-president and senior credit officer. Moody's expects the underrecovery - the loss at which diesel, kerosene and LPG are sold - to total Rs 1,10,000 crore for the current financial year, if the price of crude oil remains elevated for the rest of the year and the government does not increase the retail selling prices of LPG or kerosene.
At present, the government keeps the prices of these three products at below international market prices and compensates retailers for the losses three to six months later.
