With five months left for the dismantling of the administered price mechanism (APM), the first signs of war in oil marketing are coming through.
Essar Oil, which is preparing for an entry into the retail market for automotive fuels after April 2002, is planning to introduce a step-up commission format for dealers, by offering them higher commissions for higher sales.
This is in contrast with the oil PSUs' practice of paying a flat commission rate to dealers, regardless of the sales volumes, and could lead to a retail war following the deregulation of the sector.
Raj Varma, chief executive (marketing) of Essar Oil said, "Our plan is to get the maximum from a given investment. Ideally, I would like to sell from 800 outlets what I plan to sell from 1,700 outlets, as it would save us the administration and other cost overheads."
"If I can optimise the potential of my investment on every retail outlet through higher sales, which will result in savings, I am willing to share it with the dealers. We are willing to pay our dealers more for selling more," Varma added.
Currently, the four existing oil marketing PSUs -- Indian Oil, Bharat Petroleum, Hindustan Petroleum and IBP -- pay a flat rate on sale of every kilolitre of diesel and petrol, the two automotive fuels under the administered price mechanism (APM).
With effect from October 2000, dealers are being paid Rs 478 per kilolitre of MS-87 (petrol) and Rs 277 per kl of HSD (diesel).
However, industry sources expect the oil PSUs to follow suit and pay handsome rewards to dealers achieving higher sales.
A top official from the marketing division of an oil PSU declined to comment on the issue, but did not rule out the possibility of increasing commission rates. "We will cross the bridge when we reach it," he said.
"This is an advantage that Essar Oil, as a private company, has. We can on a daily basis look at what makes sense to the company and change our arrangements with the dealer, so that it makes sense for him and for us," Essar Oil's Varma said.
