PSU oilcos give Reliance a tough fight

The long queues of lorries waiting for a refill outside Reliance petrol pumps are now a thing of the past. In a span of less than a month, the oil retailer has lost two-thirds of its petrol and diesel sales volume to public sector rivals.

The fall is primarily because Reliance has chosen to price its fuel higher than competition, as fuel sold at RIL outlets costs Rs 2.50/litre more than the PSU pumps. The PSU oil firms continue to sell at a loss of about Rs 6 per litre of petrol sold.

Truckers who earlier swore by the quality of fuel sold by Reliance have now moved their business out because of the higher price. Reliance on its part has cut back on its expansion plans, after aggressively expanding its retail network to 1,200 pumps, investing substantially in equipment & transportation logistics over the past two years.

Marketing margins were the original attraction for private players to enter the oil business. These have been steadily eroded because of the government’s refusal to allow hike in fuel prices even as international prices have gone through the roof. For RIL the impact is cushioned by high refining margins from its Jamnagar refinery.

Exports are more lucrative than domestic sales. But Essar Oil, is not as lucky and had to shut down some of its pumps. With the backdoor return of administrative pricing, the future of fuel retailing is uncertain. The government allows only firms who invest Rs 2,000 crore in the petroleum sector to enter retailing.

A drastic reduction in that figure is unlikely to entice the private sector to enter the fuel retailing sector in a hurry.

Amit Bhandari and Cuckoo Paul