Put retail plans on fast track; indicate competitive pricing to take some time.
Private fuel retailers Reliance Industries (RIL), Essar Oil and Shell Petroleum would have been happier if the government had gone in for deregulation of diesel prices as well.
The companies said complete deregulation would have meant a positive gross margin of Rs 1,000 per kl sold. “At present, the gross margin on sale of every litre of auto fuel is zero and after a complete deregulation, it would have been a rupee per litre. Net margin would have amounted to 40 paise on each litre of fuel sold. Considering only petrol has been deregulated, we expect that at least the losses would come down drastically,” said an official from a company, who did not wish to be named.
| TANKFUL OF WOES Fuel prices effective June 26 | ||||
| Cities | Petrol | Diesel | ||
| Old | New | Old | New | |
| Delhi | 47.93 | 51.43 | 38.10 | 40.10 |
| Kolkata | 51.67 | 55.32 | 37.99 | 39.99 |
| Mumbai | 52.20 | 55.88 | 39.88 | 41.88 |
| Chennai | 52.13 | 55.92 | 38.05 | 40.05 |
| Ahmedabad | 50.84 | 54.34 | 39.75 | 41.75 |
| Bangalore | 53.71 | 57.21 | 39.87 | 41.87 |
| Hyderabad | 53.08 | 56.58 | 38.90 | 40.90 |
| Bhubaneswar | 47.70 | 51.20 | 37.95 | 39.95 |
| Chandigarh | 47.32 | 50.82 | 35.36 | 37.36 |
| All figures in Rs/litre Compiled by BS Reporter | ||||
Essar Oil and RIL had together captured about 17 per cent of the domestic retail market for diesel by 2005 before heavily subsidised sales by the public sector knocked them out of the arena.
While sector analysts say RIL could ramp up its retail operations swiftly, an RIL official said the company would have to study the proposal. “There is no clarity on diesel pricing as yet. Most of our petrol stations are on the highway and deregulation of petrol prices does not make much of a difference to us. When RIL had all of its retail outlets operational, diesel amounted to around 13 per cent of the entire sales, whereas petrol was hardly one per cent,” said an RIL official.
RIL said, in its fourth quarter results, that it had 650 retail outlets operational. RIL has 1,400-odd fuel retail stations across the country and today has less than one per cent of retail market share.
Welcoming the move, Essar Oil’s MD and CEO, Naresh Nayyar, said: “This move will benefit the consumer in the long run, through competitive pricing of fuel products. The largest active private sector fuel retailer in India, we are well placed to capture additional sales for fuel and non-fuel items and expect to see significant volume growth in both areas. We already have in place plans to increase significantly the number of retail fuel outlets.” Essar has 1,341 fuel outlets operational and sells petrol and diesel at prices similar to that of public sector units, except for a difference of Rs 1.50 and 0.50p a litre, respectively.
The company had plans to scale up its retail outlets to 1,700 by March 2011. Post deregulation, it says these plans would be put on fast track and achievable by December. today, it has two per cent of market share.
Shell India, which has 40 of its total 80 fuel retail outlets operational, might also look at re-opening the remaining outlets.
An official from Shell India said the move will increase competitiveness and would help the industry grow. Shell’s plan to scale up its retail outlets are also on track, the official informed.
Experts however, say that it would not be before six months that the industry sees competitive pricing in place.
“In the first few months, all the companies might be selling fuel at the same level. The public sector retailers would determine pricing, as they control 95 per cent of the market. Private retailers would only follow the public sector pricing. It would take around six months for competitive pricing to set in the market,” said the marketing head of a private sector company.
While the Essar Oil stock was up 6.45 per cent at Rs 137.75, RIL gained 1.1 per cent to end at Rs 1063.25 on the Bombay Stock Exchange today.
