Private petro retailers choke as losses mount

With elections looming in several states, starting with Gujarat, the Centre is in no mood to hike petrol and diesel prices, leaving oil retailers to deal with the losses. While state-owned oil marketing companies (OMCs) will eventually be compensated with oil bonds, private sector majors like Reliance Industries (RIL) and Essar Oil (EOL) have no such recourse.

RIL has lost over Rs 2,100 crore and Essar Rs 240 crore since they started their retail operations. As international crude prices continue to hold firm at the $75 per barrel level, RIL has decided to increase petrol and diesel prices by Rs 1.50 per litre from Monday. Essar Oil is likely to follow suit.

Public sector OMCs are losing Rs 180 crore per day with India’s largest marketer, Indian Oil (IOC), alone losing Rs 90 crore per day on the sales of petrol, diesel, kerosene and liquefied petroleum gas (LPG). It is losing Rs 5.90 per litre on petrol, Rs 4.80 per litre on diesel, Rs 14.16 on kerosene and Rs 190 per cylinder on LPG sales.

Petroleum minister Murli Deora could not be reached for comment. However, petroleum ministry sources ruled out possibilities of any fuel price hike in the near future. They, however, said the OMCs would be suitably compensated.

“We have over lost Rs 10,200 crore till July this year. We are seeking compensation from the government in the form of oil bonds and discount from upstream oil companies,” IOC director-finance SV Narasimhan told ET.

Oil bonds and discounts from upstream oil companies are not available to private sector oil firms. As a result, they are forced them to sell their products above PSU prices and lose market share. With the latest Rs 1.50 per litre hike, RIL’s selling price would be Rs 2.50 more than PSU oil firms’. An RIL official confirmed the increase, but declined to give further details.

“There is no way out for the private players, but to increase prices because the more you sell, the more you lose,” says an analyst tracking the sector.

RIL has lost over 60% of market share in petrol and diesel retail sales in the April-June quarter 2007, compared with the same period last fiscal. RIL has received export-oriented unit status for its refinery and is exporting most of the products.

However, its peers, including Essar Oil and Shell, gained market share during the said period, as they increased their presence in the period. RIL with 1,300 operational retail outlets had captured 14% market share from the OMCs, but lost it substantially as its products were priced higher.

“We are reviewing the situation and will take a final call in the next two days,” an Essar official said. Essar Oil, which has 1,250 operational retail outlets, plans to increase this to 1,500 by March 2008. The company is presently selling its products at Rs 1.50 to Rs 4.50 higher than OMCs and has lost around Rs 4.75 on petrol and Rs 4 on diesel sales.