More is less, less is bliss

Politics and economics of oil globally has always been played by the Big Boys. So it is in our country. The abnormal spurt in global crude oil prices has forced the government to intervene and to keep retail fuel prices under check to cushion the consumers, albeit at a huge cost to the fiscal health of the economy.

Reliance and Essar, the two new private players in the petro retail market were also feeling the heat and unlike the PSUs there was no handholding for them.

Their grievance is simple. They get no bailout packages from the government, like the PSU oil majors do. So retailing at subsidised prices is not commercially viable for private players. So they needed to adopt some smart market acumen to stay afloat in a quasi-control regime.

Their top honchos fly down to Delhi weekly to lobby hard with the oil ministry bosses for bonds but a breakthrough looks remote. However, private players are answerable to their shareholders and cannot continue taking losses on their balance sheets. Ergo, a new strategy to stay afloat; they cut down losses simply by lowering sales.

But was RIL really in a spot? As RIL’s market share went down the PSUs’ market share recorded a big increase. The government’s subsidy burden also increased correspondingly to support the PSUs. And ultimately the losses would be borne by the government either through increased bond issues or payouts by ONGC.