Pvt oil cos will now find bulk diesel sales lucrative

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SummaryPrivate oil marketers like Reliance Industries and Essar Oil, which have been forced to idle a part of their fuel retail outlet network, are bracing up to give competition to public sector oil marketing companies in the bulk diesel market, thanks to Thursday’s government decision to deregulate this market.

Private oil marketers like Reliance Industries and Essar Oil, which have been forced to idle a part of their fuel retail outlet network, are bracing up to give competition to public sector oil marketing companies (OMCs) in the bulk diesel market, thanks to Thursday’s government decision to deregulate this market.

Bulk buyers, including state transport corporations, Indian Railways, defence and industrial customers, who represent around 20% of the total retail sales of around 90 million tonnes a year, will now be required to pay market rates for the fuel.

The private oil marketers are also watching how the the decision to allow OMCs to raise diesel prices for retail consumers by around 50 paise/litre a month (exclusive of taxes) would be implemented. Till petrol and diesel prices are deregulated, the private OMCs may have to keep retail outlets inactive.

The calibrated price hikes being planned are more limited than expected, as the oil ministry last month indicated that it was working on a proposal to raise diesel prices by Re 1 a month for 10 months.

Under the new rules, bulk buyers of diesel would have to pay market rates, a move that analysts reckon could open up a new market for private players and cut subsidy on diesel by 18% or around Rs 13,000 crore at current oil prices. The prices paid by bulk diesel consumers are slightly less than those retail consumers pay because the former excludes dealers’ margins (around Re 1/litre) and discounts offered by OMCs to increase sales.

"The losses in retail will remain prohibitive until it comes down to Rs 2-3/litre, from the current Rs 9-9.50/litre. However, bulk buyers represent a more attractive market for private players," said an analyst with an international brokerage, who declined to be named.

Private fuel retailers — Essar Oil, Reliance Industries and Shell India — represent less than 10% of India’s fuel retail business, with government-owned companies Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation dominating the industry.

Private companies have invested substantially in setting up retail outlets but have been forced to underutilise their network as they cannot pass through the cost of diesel, which is the mainstay for all fuel retailers.

Essar Oil, which has around 1,406 retail outlets, has only 1,200 outlets operational, while Mukesh Ambani-owned Reliance Industries, which has around 1,470 retail outlets, runs only 450 at present. Shell India, the only international energy company licensed to build and operate fuel

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