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Economy Feb 19, 2013

Now, dealers are seeking decontrol from state-run oil cos

By Firstbiz Editors

Public sector oil marketing companies have already started facing the heat, even before the complete diesel decontrol has set in.

According to a report in the Economic Times today, owners of dealer-owned-dealer-operated (Dodo) fuel filling stations of the state-run oil companies are likely to move on to private sector rivals Reliance Industries and Essar Oil once diesel gets fully decontrolled.

Complete decontrol will happen only after some months as the government has permitted the state-run companies to raise the prices in a phased manner. However, to bulk consumers like state transport corporations and railways, the full decontrol is already implemented and oil firms are selling the fuel at market rates.

AFP

Once full decontrol happens HPCL, BPCL and IOC may have to do with with just these state-run bulk consumers, while retail consumers start migrating to private sector rivals en masse.AFP

The Federation of All India Petrol Dealers, the body to which 42,000 of the total 45,000 pumps in the country are affiliated, has said that it would seek the oil ministry's permission to relax contract terms with the state-run firms to enable the pump owners shift the dealership, the report said.

It says for RIL and Essar, too, wooing the owners of Dodos is easier than setting up a new pump as this would involve buying high-priced real estate and also getting 30 different approvals.

According to the report, the pump owners feel that they may lose out to the private companies' pumps. Earlier, when diesel was selling at market rates, private companies' petrol pumps had easily managed to garner a 15 percent market share. They fear a repeat of this once the full decontrol sets in, the report quotes the federation's general secretary as saying.

However, state-run firms do not want to lose their dealers. They claim their incentives for dealers are better than RIL and Essar's.

From the looks of it, the dealers are the ones who are likely to make the most from the diesel decontrol.

Hindustan Petroleum Corporation, Bharat Petroleum Corporation and Indian Oil Corporation surely knew that when they asked for the freedom to decide the diesel price, they were also asking for more competition from rivals.

But the threat of dealer migration has come as a bolt from the blue and can deal them a body blow.

Earlier, before 2008 when RIL and Essar were retailing auto fuel, the state-run companies were at an advantage whenever global crude oil prices went up. As they were selling fuel at huge discount to the market rates, customers flocked to them.

But this time round, if the government is implementing the decontrol in letter and spirit, in all likelihood the advantage is going to be for the private sector players.

Already there have been reports that the full diesel price decontrol for bulk consumers have not paid off for HPCL, BPCL and IOC, as consumers like state transport corporations are going to retail outlets, where the fuel is subsidised.

A Business Standard report had quoted an industry official as saying that the dual pricing system introduced by the government has actually backfired on the companies as they have witnessed a 30 percent decline in their diesel sales to bulk consumers since 17 January.

However, this may be temporary as even the retail prices of the fuel are supposed to attain parity with market rate in a few months' time. But now the threat is that once full decontrol happens HPCL, BPCL and IOC may have to do with with just these state-run bulk consumers, while retail consumers start migrating to private sector rivals en masse.

The damage done by many years of government control on oil prices is so heavy that now control or decontrol of fuel is unlikely to make much of a difference for the state-run oil companies.

by Firstbiz Editors

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