Glut in pumps chokes dealers

Operational costs, decline in sales dent petroleum dealers' profit.

The Chaddas, who have been running a petrol vend in Delhi's ITO area since 1964, are a worried lot. A sharp decline in the volume of sales over the last few years coupled with increased operational costs means that fuel retailing is no longer the profitable business it once used to be.

Their fuel station, which is owned by Hindustan Petroleum Corporation (HPCL), has seen costs of everything "" from power to labour "" skyrocketing manyfold while revenues increased marginally.

"We manage to survive on additional income from non-fuel activities such as convenience stores and car-servicing," says Chadda, who does not use his first name.

The Chaddas, like their counterparts in the country, have pressed the panic button to retain some share of what is clearly a very crowded market. "The country is severely overpumped," says Ajay Bansal, secretary of the All""India Petroleum Traders' Association.

Over the last five years, the number of outlets doubled to about 32,000 today. However, throughput per outlet has declined by more than half "" from 160 kilolitres per month to 70 kilolitres per month.

"Excessive competition is killing profitability," says Ashok Badhwar, president, All-India Petroleum Traders' Association. In certain non-metros, inability of dealers to meet the operational costs has led to serious drastic consequences. "There have been cases of dealers committing suicide in Himachal, Orissa and Kerala," he said.

The situation in metros is also worrying. The Delhi master plan says a single fuel station is enough to cater to a population of 2.3 lakh.

At Delhi's current population of around 1.7 crore, this means Delhi needs just about 74 outlets. The national capital has more than five times this number "" 411 outlets.

It is no wonder then that the four marketing companies "" IOC, BPCL, HPCL and IBP "" are planning to open just eight more outlets in Delhi in 2007-08 out of 3,550 more outlets planned in the country.

The proliferation of pumps is the result of two factors "" the entry of private sector retail and the end of controls on retail expansion with the expiry of the administered price mechanism in 2002.

Despite the petrol pump scam during the regime of the Bharatiya Janata Party (BJP), and the subsequent changes in policy, it seems little has changed. When asked what one has to do in order to open a petrol pump, Badhwar's reply was simple: "Have political contacts."

These pumps are still doled out as largesse to backward castes and war widows. So it seems the problem of plenty is unlikely to be over. And this is despite the private sector "" mainly Essar and Reliance "" backing out of the retail race with the return, through the back door, of a controlled price regime.

The demand from the private sector retailers for "subsidy support" worries dealers such as Chaddas who fear that the situation could go from bad to worse.