Slowdown in private fuel retailing

The busy New Delhi-Chandigarh highway has automobile fuel retail outlets all along its 238-km stretch. While most of these belong to government-owned companies, private sector giant Reliance Industries (RIL) has around seven outlets, and all of them are shut. It is not the only private company which has been forced to close fuel retail outlets.

The Essar group has also closed down 275 outlets across the country. The two companies could not withstand "unfair competition" from government-backed companies which are compensated for selling fuel at subsidised rates.

Essar, which currently has 1,250 outlets, sells petrol and diesel at Rs 4.50 per litre higher than the rates charged by the government-backed marketers in five states.

In Haryana, RIL sells petrol and diesel at Rs 2.50 a litre higher than the state-owned companies. "The company sells it at higher prices simply because it wants to discourage customers. For every litre of fuel it sells, it is actually making losses," said an industry official dealing with fuel retailing.

The company, however, is not yet converting the land occupied by these outlets for other businesses. "We continue to give the dealers 12 per cent returns on the investments they made on the outlet. The outlets have shut down for reasons beyond their control," a senior RIL official said.

Dealer-investors are also holding on to their investments, as they are hopeful of a reversal of the subsidy policy which would equalise their retail rates and those of the public sector units (PSUs).

The impact of equalisation can be seen on the highway from Chandigarh to Manali in Himachal Pradesh. The RIL outlets on this stretch are thriving. The reason: the company is selling petrol and diesel at prices similar to that of the PSUs.

Across the country, however, RIL's fuel retail business is suffering as the company, along with other private sector retailers, is not compensated by the government for the losses it makes.

"There is no level playing field in the business as far as fuel retailing in concerned. Thus we will go slow in opening new retail outlets," said an official with RIL, which currently has around 1,800 outlets.

The other private sector companies in the business "" Essar and Shell "" are also going slow in opening new outlets. The number of Shell outlets have increased to around 35 from around 19 a few months ago. The returns from the outlets, however, are not very good. "We wish we were getting more margins" was how a Shell official preferred to put it.

The Essar group too is not very bullish on opening new outlets. "The urban areas are out as land is too expensive and we do not get compensation for retail losses. We will, however, open a few outlets on national highways," an Essar official said. The company plans to open 250 more outlets this financial year.

The odd one out in the business is the government-owned crude oil refiner Numaligarh Refinery Ltd (NRL), a subsidiary of Bharat Petroleum Corporation. The company, which operates a 3 million tonne refinery in Assam, has 74 retail outlets across the country, with eight outlets in Haryana, most of them concentrated in the Delhi-Chandigarh highway.

"The company is going ahead with retail expansions and plans to open at least 100 more outlets this year, mainly concentrated in the North-East," said a senior official in the oil ministry.

Exploration company Oil and Natural Gas Corporation (ONGC), after dropping its plans to open retail outlets under its brand, is now looking to sell diesel at Ashok Leyland-owned truck service centres, of which the Hinduja group company controls almost 60 per cent of the South Indian market. "That is the way forward for us as far as retail is concerned," a senior ONGC official said.

Mangalore Refineries and Petrochemicals Ltd (MRPL), ONGC's subsidiary, too is going slow on its retail roll-out. The company, which has the permission to open almost 500 outlets, will open only 12 outlets, all of them located in Karnataka.

"It is just the way the market is at the moment. No company would want to dip its fingers into a business that is fraught with losses," a Delhi-based analyst concluded.