Even though the oil marketing companies (OMCs) maintain that daily petrol and diesel retail price revision will result in better management of inventories, the issue seems set to escalate as dealers plan to play hardball. The dealers are set to meet the OMC representatives on Tuesday to put forward their “concerns regarding inventory losses which have been ignored”, said Ajay Bansal, resident of All India Petroleum Dealers’ Association. Dealers affiliated with OMCs have threatened to go on an indefinite strike starting June 16 in case the date of roll out is not postponed. The OMCs had last week announced fuel prices will be revised on a daily basis starting June 16 which will reflect changes in international prices. The announcement was made after a pilot in five cities — Udaipur, Jamshedpur, Puducherry, Chandigarh and Visakhapatnam — was conducted starting May 1, 2017.
However, though the dealers affiliated to OMCs are expressing concern, private oil retailers seem to happy with the decision who have already been offering differentiated prices. “It is a good decision by the government. There may be some teething issues in the beginning , but will benefit all the stakeholders in the long run. We welcome the move,” said Lalit Gupta, managing director and chief executive officer, Essar Oil.
Dealers associated with OMCs are worried about the losses that they will make after the prices change between the time fuel is bought and it is actually delivered at the outlets. “We want OMCs to absorb the change in prices, whether up or down, as we work on thin margins” said Bansal.
Bansal also claims that since not all petrol pumps are fully automated, there will be down time of around an hour every night as every nozzle point will be required to be reset manually, and stock of fuel sold and left in the tank will have to taken before resuming sales. According to him, though out of the around 56,000 fuel retail outlets across the country 14,000 are claimed to be automated, only around 5,600 are fully functional with Internet connection. At the functional automated retail outlets, there will be no down time as the price can be reset remotely by an OMC and inventory sold can be taken stock of.
At the same time, all the petrol pumps operated by private companies such as Reliance Industries and Essar Oil are centrally operated. According to an industry source who did not want to be named, daily pricing can be easily implemented and beneficial for private companies as their fuel outlets are master-controlled by companies themselves.
OMC sources, however, said dealers will be able to manage inventory better as increase or decrease in buying pattern at the end of the fortnight depending on market perception of upcoming price trend in prices can be avoided. This will help in avoiding current fortnightly pricing mechanism which results in sales distortion and pressure on the marketing infrastructure. “…as dealers and some consumers were able to predict price movements, they have been resorting to bulk purchase or draw down from the inventory towards the end of fortnight, depending on the direction of prices, resulting in some lumpiness in sales and opportunity loss on the marketing margins for OMCs,” Icra noted in a report.
The rating agency in the report also said the daily revision is also expected to safeguard consumers as they will not feel the pinch of sudden quantum change in prices as is the norm now under fortnightly price review and will also lessen the chances of the issue being politicised.