Oil price heat burns pvt retailers

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Wednesday, May 07, 2008 at 2333 hrs The unprecedented increase in crude oil prices, by almost 75% in the last one year, has virtually wiped out the private sector’s presence in domestic fuel retailing. Global crude prices rose to $120 a barrel on Monday. This has pushed up the cost of

India’s import basket to an all-time high of $112.56 a barrel, compared to last fiscal’s lowest price of $62.91 on May 9, 2007.

Private sector majors in the fuel retailing space—Reliance Industries Ltd and Shell—have, therefore, begun shutting down most of their petrol pumps across the country. Fuel sales at these outlets have dropped to almost nothing given the huge difference between their prices and those of government subsidised fuel sold at pumps belonging to public sector oil marketing companies IOC, BPC and HPCL.

These three public sector retailers currently sell petrol at a loss of Rs 13.97 a litre and diesel at a discount of Rs 20.97 a litre. However, part of this revenue loss is made up by the government through oil bonds and subsidy share from upstream firms like ONGC and GAIL.

However, as private firms are not entitled to this subsidy, their fuel is Rs 8-10 a litre costlier.

“Reliance has informed that sales at their retail outlets was negligible due to the selling price differential between private and public sector ROs, leading to the closure of all their 1,432 pumps in the country with effect from March 15,” petroleum minister Murli Deora informed the Rajya Sabha on Tuesday.

While Deora said Shell is not closing its outlets, a recent company press release stated that it was temporarily shutting 15 outlets from May 7. “The company decided to shut down the outlets due to the absence of a level playing field for private oil companies and the rising global crude oil and refined product prices,” the release stated. Shell India currently has 50-odd outlets, mostly in south India and Maharashtra

The petrol pumps of the third private sector retailer, Essar Oil, have also seen sales evaporate. “Unlike Reliance and Shell…we own only one petrol pump and the remaining 1,245 pumps operate through the franchise route. There is virtually no sale of fuels as the price differential vis-à-vis the PSU petrol pups is around Rs 8 per litre,” confirmed an Essar spokesperson.