Competition has finally arrived in the retailing of petrol. The recent price cut by state-owned IOC, HPCL and BPCL was prompted partly by fears that private refiners Reliance Industries and Essar Oil might step up retailing of petrol if the deregulated commodity is sold in the local market above international prices.
IOC, HPCL and BPCL cut prices by R2.24-2.35 a litre on Tuesday taking into account the possibility of private retailers undercutting them to grab a market share if any gains from the softening global petrol price is retained to recoup past losses rather than passing it on to the consumer, sources privy to the decision making said.
Reliance has about 1400 fuel retail stations but only a few of them retail petrol as the private sector could not compete with state-owned companies that have not been adjusting the domestic price with the fluctuations in the global market. In the absence of market linked pricing of fuel, RIL, which owns a fourth of the world?s most complex refining capacity, has been focusing on overseas markets. Essar too has nearly as many fuel retail joints in a market dominated by the three state owned firms.
Although petrol has been deregulated last June, state-owned companies hesitated from raising prices in line with global prices before assembly polls in five states earlier this year. For political reasons, companies have not raised prices to the extent warranted by global petrol price on many occasions, hoping the price would eventually come down. Now, state retailers have decided not to recoup past losses on petrol sales when there is a strong case for a price cut on account of lower petrol price in world markets or a stronger rupee that makes imports cheaper, sources said.
?If the price reduction warranted on petrol is significant, say close to a rupee, then oil marketing companies should not carry forward their over-recovery in sales,? said a government official, privy to the discussions with oil companies. The same applies when a price hike is necessary, the official said.
Although there is competition in the upstream oil and gas sector, where blocks are auctioned based on competitive bidding, there is none in the downstream market. Public sector retailers who control nearly the entire market consult the government and revise prices at the same time. The upstream sector has also been witnessing increased competition as state owned refineries diversify into exploration and production. Although mandated to look into competition issues of government departments and enterprises, the Competition Commission of India has not intervened in the matter as fuel pricing is a sensitive and political policy issue. The retailers’ decision to revise petrol price frequently and not to carry forward profits or losses even by a fortnight is set to encourage private refiners to step up retailing operations, industry sources said.