With the Centre deregulating prices of petrol and diesel, public sector oil marketing companies (OMCs) like Indian Oil Corp (IOC), Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL) are likely to face fierce competition from private players such as Reliance Industries Ltd (RIL) and Essar Oil for market share. Consumers will only benefit from this competition over price.
So far, private retailers were unable to run their operations in a profitable manner because of the government’s policy to subsidise OMCs’ sale of petrol and diesel. RIL and Essar are now expected to aggressively expand their presence in petroleum business by opening more outlets. They are also likely to go for price competition to snatch market share from OMCs. Private retailers can source petrol and diesel from their low-cost refineries at competitive prices. OMCs are likely to feel pressure on their margins. Margins are always lucrative in retailing business. The petroleum retailing sector is expected to see huge private investment. OMCs are likely to intensify their focus on retailing instead of looking for opportunities for diversification.
OMCs’ cash flow situation is expected to improve significantly. So, they can aggressively pursue investment plans for the retailing business.