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Amit Mitra

Mumbai, Oct 17 Fuelled by the recent cooling of crude oil prices, the Ruias-owned Essar Oil has stepped up efforts to re-activate its network of retail outlets across the country.

All the 1,250 retail outlets of the company, with 50 per cent located in western India, were frozen about three years ago, as the prices of its products were significantly higher than those offered by the oil PSUs that are subsidised by the Government.

Now, with the dropping of crude prices, the company has decided to revive a bulk of its outlets, as it can now offer products at a slightly higher price than the oil PSUs.

From a peak of about $145 a barrel in mid-July, crude prices fell to about $101 in mid-September to touch $67 yesterday.

The company, which started the reviving process in August this year, has so far reactivated between 300 and 350 outlets.

“We plan to reactive about 70 per cent of our outlets by December end,” a senior official of the company told Business Line.

He said the company would not need fresh investment for the revival process, as the outlets had the basic infrastructure in place.

All its outlets are on franchisee business models.

The company at present produces 12.5 million tonnes of products at its Jamnagar refinery and only a miniscule portion of this would be required by the outlets.

“We expect crude prices to remain at the present levels for some more time and hence the reactivation process. Our products will now be slightly higher than the oil PSUs – for example out petrol will be Rs 2 a litre higher than the oil PSUs and diesel will be Rs 5-7 a litre higher,” the official said

The company feels that with the current shortage of petroleum products in certain regions, its rates will be viable. In fact, shortage of products in certain areas was another reason that prompted Essar to revive its retail outlets.

“For example in Tamil Nadu, the industry is in the grip of an acute diesel shortage. Essar Oil has started the supply of diesel to the oil industry in the State,” the company official said.

The company, which was recently approached by the oil industry in Tamil Nadu to supply diesel, has been marketing the products at market determined prices through its outlets – it has about 60 outlets in the State.

A few industries have also been sourcing High Speed Diesel from Essar. The price for the product is linked to international prices and changed every fortnight – at present Essar’s HSD is priced at Rs 13 a litre more than PSU prices.

However, with the recent announcement by the Tamil Nadu Government on removal of VAT on the supplies made to the industries, prices offered by Essar Oil will be only Rs 4.50 a litre higher than the prices of oil PSUs.

The Essar Oil scrip closed at Rs 98.05 on the NSE on Friday.

More Stories on : Outlook | Retailing | Petroleum

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