Cut in diesel losses drives private retailers Essar Oil, Reliance Industries

Written by Siddhartha P Saikia | New Delhi | Updated: Aug 9 2014, 13:48pm hrs
Diesel retailEssar Oil, controlled by billionaire brothers Shashi and Ravi Ruia, is gearing up for a massive expansion of its retail business.
With the retail price of diesel approaching the market rate, private companies, whose retail forays were frustrated by the price controls on petroleum products, are about to take the plunge again. Essar Oil, controlled by billionaire brothers Shashi and Ravi Ruia, is gearing up for a massive expansion of its retail business.

The plan is to increase the number of outlets from some 1,400 now to 3,000 in three to four years, with the focus on cities rather than rural areas, sources from the company said.

Reliance Industries (RIL), the other major private firm that has always had an eye on going big on the retail business and has been awaiting price deregulation, has similar plans, sources said. However, RIL wont reveal its strategy at this juncture.

Thanks to the gradual increase in the price of diesel since January 2013, the under-recovery of public sector oil marketing companies on this fuel has narrowed to Rs 1.33 per litre now, from Rs 10-11 per litre that prevailed when the process began.

Market pricing of diesel is vital for the viability of the retail business because the fuel accounts for 44% of the total consumption of petroleum products in the country (from 36.64 million tonnes in 2002-03, diesel sales have risen to 69.16 million tonnes in 2012-13). Roughly 80-90% of the sales at fuel pumps along the highways are that of diesel and, on average, the sale of this transportation fuel accounts for nearly half of the sales at the countrys fuel stations.

Sushil Maroo, chief executive at Essar Energy, the parent company of Essar Oil, told FE that once diesel is completely deregulated, the firm would be aggressive in its retail expansion.

Currently, wherever (pump) owners are losing, we are compensating them, the top executive said.

Another official in the group said on condition of anonymity, Our retail sales have been almost entirely petrol-dominated. Upon diesel deregulation, we would begin selling diesel also.

Petrol prices were deregulated in June 2010 and currently PSU oil marketers dont incur any losses on it.

With another three scheduled hikes of 50 paise a month, the auto fuel would be at market rates from October unless the price of crude oil rises significantly during the period and/or the rupee plunges against the dollar.

We are now looking at various other formats for expansion like COCO (company-owned and company-operated) and CODO (company owned, dealer operated), in additional to DODO (dealer owned, dealer operated) which is our current format, the officer said.

Pumped up

* Current differential between market rate and subsidised diesel price: Rs 1.33/ litre

* Essar Oil has 1,400 pumps right now and another 300 are on the anvil; company plans to have 3,000 refill stations in

3-4 years

* RIL has 300 operating pumps across western and southern India and many hundreds


* While Essar Oil follows dealer-own-dealer-operate model, RIL owns and also operates the outlets

* In FY14, retail sales contributed about 2% of Essar Oils topline (R107,190 crore), while the corresponding figure for RIL is negligible

* Essar Oil looking for setting up outlets in city centres; sell more diesel; RIL says it is waiting for the business environment to improve