Oil PSUs pull the plug on dealer credit as fuel sales burn profits

New Delhi: State-run oil companies have withdrawn credit to petrol pump dealers, as they are no longer chasing higher sales with retailing turning loss-making, according to industry executives and dealers.

State oil companies, which control around 90% of fuel stations in the country, have asked dealers to pay for fuel on the same day, ending the usual practice of 3-5 days of credit.

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Dealers typically extend credit ranging from a few days to weeks to large diesel customers. They have now begun shortening these credit periods as well.

With oil companies ending credit, managing cash flows has become a challenge, a petrol pump dealer said, adding that this is forcing some outlets to order less fuel.

"Companies provide credit to dealers to boost sales and market share. Now higher sales mean higher losses. Companies don't want that anymore," an industry executive said.

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Prices of crude oil as well as petrol, diesel and aviation turbine fuel have surged in the international market. Brent futures are trading above $100 per barrel, while spot prices at which refiners are actually buying are much higher. Margins on diesel and ATF have also risen sharply.

However, domestic pump prices have not budged, meaning every litre sold results in losses for state refiners. By withdrawing credit, companies are seeking to avoid incentivising higher sales.

Domestic pumps are well supplied and no dry-outs have been reported anywhere, Sujata Sharma, a joint secretary in the oil and gas ministry, said, adding that the withdrawal of credit to dealers is a commercial decision made by oil companies.