The recent diesel price hike by public sector marketing companies is too little for the oil retailing business to become competitive, say private oil retailers such as Essar and Reliance.
Private sector sources told Business Line that despite the recent increase of 45 paise a litre, excluding taxes, by PSU OMCs — Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation — the price differential between the public and private sectors was still vast, making it unviable for the latter.
While private retailers sell petrol and diesel at market prices, public sector refiners sell diesel from retail outlets at Rs 47.65 a litre, almost Rs 9.15 a litre below market price.
“It will take at least 14-15 months for the PSUs to start retail-selling diesel at market price, as the Government has allowed them to increase the price in small quantities,” an official from a private sector oil retailing firm said.
Price differential
The Government had allowed oil retail PSU to raise diesel price by 45 paise a litre effective January 17.
The companies have been allowed to raise prices in small doses till they can neutralise their losses on selling the product below cost.
In fact, the private petroleum retail business had taken a hit because of the huge price differential between their pricing and that of the PSUs. The latter, till June 2010, were selling both petrol and diesel at the Government-controlled price. In 2010, the Government de-controlled petrol.
Today, Essar has almost 1,400 operational retail outlets, Reliance Industries has close to 300, and Shell has 68.
While Essar is operating to almost full strength, Reliance and Shell are operating fewer outlets. Reliance has licences for setting up 5,000 outlets and Shell for 2,000. Most of these retailers currently sell petrol.
Private retailers will now try to make inroads into the bulk customer market — railways, industrial users and State Transport Corporations — where, till now, PSUs have had a monopoly.
Bulk market
The Government has now allowed PSU OMCs to sell at market price to bulk consumers who buy supplies directly from their installations.
But capturing the market may not be easy for the private players.
Industrial users and State Transport Corporations have become smarter and, instead of buying from depots at market rates, are tying up with retail outlets for supplies, said an industry official.
The Railways, at present, have contracted supplies with public sector retailers. So, only when this contract expires can competition from the private sector be expected, he added.
Besides, private retailers would also require infrastructure, such as a fleet of tankers and depot terminals to cater to customers located far away from their refineries, an industry observer said.