The Hindu Business Line : Private sector oil cos’ retailing biz continues to take a hit

Unresolved crisis
Complaints lodged about formation of a cartel by PSU companies precipitating predatory pricing.
Issue remains unresolved with the board yet to be empowered to regulate sale and marketing of petroleum products.

Richa Mishra

New Delhi, Oct. 2 Private sector oil companies such as Reliance Industries Ltd (RIL) and Essar Oil Ltd have not received any reprieve from the Petroleum & Natural Gas Regulatory Board (P&NGRB) on the issue of level-playing field with the state-owned oil marketing companies (OMCs) for their retailing business.

The players have approached the Board complaining about formation of a cartel by the PSU oil marketing companies precipitating predatory pricing. However, with the Board yet to be empowered to regulate the marketing and sale of petroleum products, the issue has remained unresolved.

Predatory pricing

This is the differential between sourcing and selling prices of the two products.

Voicing their concern, Essar, RIL and Shell India Private Ltd have said that the Government has administratively kept the selling prices of petrol and diesel below the cost of acquisition of these products. As a consequence, the public as well as private sector marketing companies are making huge losses.

“PSUs are however being compensated through a combination of oil bonds and discounts on supply of indigenous crude by ONGC and Oil India Ltd. The private sector companies are receiving no such support leading to predatory pricing by the PSUs which is also against Competition Policy,” they said.

Dip in market share

Besides, due to the price sensitivity of petroleum products, the market share of the private companies has dipped, they said. The market share of private players has fallen from 15 per cent in April 2006 to one per cent in September 2006. Moreover, the private sector refiners have been compelled to export their entire production, which has resulted in a further loss of Rs 1,000 per kl compared to the realisation of a PSU refiner.

Approximately 2,000 dealers have invested about Rs 5,000 crore in the private sector retail network. In addition, the transport contractors, who have invested in trucks for the delivery of petrol and diesel, have now around 4,000 idle trucks. “It is estimated that approximately 80,000 jobs – direct and indirect – will be lost if the level playing field is not restored,” industry sources said.

Earlier attempts by the private players to seek a level-playing field also yielded no results, with the Petroleum Ministry declining to extend a compensation package similar to that offered to the PSU OMCs for selling auto fuels – petrol and diesel – below the cost price.

Sources told Business Line that the private sector will now have to wait for the P&NGRB to be fully empowered or the Government to take a decision before they can become competitive in the market.

More Stories on : Petroleum | Petroleum | Reliance Industries Ltd

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page