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The revision of prices of petroleum products on Sunday was music to the ears of petroleum products distributors in Punjab and Haryana, as the steady decline in the prices of motor fuels since August 2014 had substantially eroded their margins.
"Petrol and diesel distributors keep a stock to cater for at least three to four days' demand. A sudden rollback in prices cuts our recovery on the fuel that has been purchased at a higher price and severely erodes our margins," said Ashok Thapar, senior vice-president, Punjab Petroleum Dealers' Association.
An erratic and inconsistent price regime puts small and medium players in a precarious situation, as they cannot afford to hire highly-paid lawyers and chartered accountants, he added. Distributors earn a margin of about Rs 2 a litre on petrol and about Rs 1 a litre on diesel.
Motor fuel has a high evaporation rate, and the margin paid on the quantity of fuel sold is not remunerative. Petrol pump owners have been demanding that OMCs (oil marketing companies) link the margin to the price of fuel.
"We want a five per cent margin on the retail price of petrol/diesel because whatever we earn on quantity is just half the value," Thapar said. The evaporation loss is compensated at the rate of 0.89 per cent of the purchase price for petrol (the price at which the oil is purchased from the oil company) and 0.29 per cent for diesel.
Retail distributors lose on account of temperature variation, because the oil temperature at the refineries is phenomenally high and increases the volume. When the temperature drops, the volume of the fuel stock at the filling station shrinks, M C Gupta, general secretary, Haryana Petroleum Dealers' Association, explained.
Private OMCs do compensate the small distributors on the price revision by the Union government, but out of about 2,900 filling stations in Punjab, very few are registered with private players.
A filling station in the region sells, on average, 70-80 kilolitres of fuel in a month. The proliferation of filling stations over the past few years has also undermined the earnings of retail oil distributors.
Due to a price differential with neighbouring Haryana and the Union Territory of Chandigarh, the illegitimate trade in oil is rampant in Punjab. The price difference is due to the different value added tax (VAT) charged by the different states.
The VAT on petrol in Punjab is 32.5 per cent, but only 21 per cent in Haryana. The VAT on diesel is 12.36 per cent in Punjab and 12.07 per cent in Haryana.
Petrol pump owners also want transparency in the oil price revision formula, so that they do not lose by buying at a higher price, if prices are likely to be reduced.
