The Hindu Business Line : RIL fuel retailing biz yet to recover

Reliance Industries' domestic fuel retailing business, which took a beating in the last six months, is yet to recover despite the company dropping prices thrice in the last two months.

According to sources, the current average sales range between 10-20 per cent of the peak throughput in the range of 400-500 kilolitre (kl) per pump achieved during the beginning of this fiscal.

Too many changes in the pricing mechanism, presumably to keep pace with the input costs, seem to have had a telling impact. Though ex-depot prices were brought to PSU level recently, the sources said sales continued to rule at very low levels primarily due to imposition of freight-differential in some areas.

This means that prices vary at the pump level depending upon each pump's distance from the nearest storage point. Though the public sector oil marketing companies also wanted to introduce the freight-differential system, they have not been able to get the Government nod.

Reliance official sources did not respond to queries but the company franchisee sources said that it was weighing the transfer of the retailing business to a separate marketing subsidiary. RIL has about 1,300 outlets in the country of which 400 are company owned.

The freight differential has not only made petrol and diesel sold by a substantial number of Reliance outlets dearer compared to PSUs but also led to difference in prices from one RIL outlet to another within the same State, for example in Maharashtra and Bihar.

Limited depot-network

One of the reasons behind the difference in prices is that RIL has a limited depot-network compared to PSUs and the average distance between a depot and an outlet is reportedly higher. Also, the company does not enjoy any product-sharing arrangement with the PSU oil companies.

Interestingly, RIL has kept Jharkhand and West Bengal out of the freight-differential system. According to a retailer, the diesel sales through his outlet touched close to 20 kl per day in April. Sales came down to the level of one kl as soon as RIL revised prices higher than PSUs and is now ruling at less than two kl, which is 10 per cent of the original sales.

It may be mentioned that in two successive revisions in May and June, Reliance Industries priced its products Rs 2.5 per litre higher than the PSUs.

The strategy was adopted in the face of high marketing losses due to steep rise in crude oil prices and lack of government support (in the line of bonds or upstream sharing) as was extended to PSUs.

With fall in crude prices beginning October, RIL matched its ex-depot prices to the level of PSUs through three successive price cuts but also introduced freight-differential between depot and outlet in the final prices.

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