The Hindu Business Line : Oil prices mismatch — Essar asked us to close bunks, say franchisees

WITH the mounting mismatch between domestic and international prices of diesel and petrol in the retail market, Essar Oil Ltd has asked its franchisees to close their bunks till March 2006 or accept considerably reduced supplies, according to two such franchisees.

"Essar has asked us to keep our pump closed till March 2006 and use the time for renovation and upgradation. The company hopes that by then its refinery will go on stream and it would be able to commence regular supplies to us," a Rajkot-based franchisee told Business Line.

The franchisee said the company had verbally told its dealers that if they continued to stay open, they would get only 25 per cent of what they were supplied with in April - the month Essar has been using as the base to compensate its dealers for loss in volumes in the subsequent months.

"The company has also said the supplies could be further curtailed in the coming months, if the crude prices continued to remain high without a commensurate increase in the retail price of petrol and diesel. Till last month, the company was supplying 40 per cent of the diesel and 60 per cent of the petrol sold by the franchisees in April," he said.

Essar will, however, continue to compensate the pump owners on the rentals and margins based on their April sales. So, while the pump owners lose out in terms of additional income from incremental growth in sales, they continue to make the same amount of money they made in April.

The company, however, denied that it had forced any of its franchisees to shut shop for renovation and upgradation. "We continue to supply them with products, but in a limited manner as has been going on for the last few months. We have also advised them to use the lean period to renovate their premises to come up to our standards," an Essar Oil spokesperson said.

The company says it has not issued any new guidelines to the franchisees. "Several of our franchisees had set up their pumps in a hurry and they did not meet our standards. We are only asking them to take this time to upgrade," the spokesperson said.

A franchisee in Ahmedabad said it had not received products from Essar in the last few days and was managing with whatever stocks it had in the inventory. The pump was open on Saturday.

While all petroleum marketing companies are suffering on account of the petrol and diesel prices not rising in line with the increase in global crude prices, Essar, a pure marketing company without a refinery to fall back on, has been hit the hardest.

Essar pays a commission of 73 paise per litre of petrol and 43 paise per litre of diesel to its franchisees. The company is still losing about Rs 4 per litre of petrol and Rs 3 for every litre of diesel sold, the franchisee said.

Essar buys its products from the Mangalore refinery.

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