According to the proposal, private cos will buy from PSUs at Re 1 more than retail price and sell at Re 1 more than purchase price
Richa Mishra
New Delhi, Aug. 30 Private sector players such as Essar Oil Ltd are considering procuring auto fuel from integrated public sector refining-cum-retailing units for selling them through their retail outlets at a price differential of Rs 2 a litre.
The move is not only expected to narrow the price differential between the products sold through private retailers and public sector retail outlets, but also help the PSU oil marketing companies (OMCs) to reduce their revenue losses.
Official sources told Business Line that "the private players are raising this option for the Government to consider". It is proposed that private retailers will buy petrol and diesel from PSU refiners at the current retail selling price of State-owned OMCs plus Re 1 a litre. The private retailer would then sell the two products at a minimum of Re 1 a litre over the PSU price, thus avoiding undercutting of PSUs' volumes.
Besides, the proposal to purchase at a price higher than the retail selling price of PSU OMCs – Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation — will help the PSUs reduce the losses they suffer for selling products below the market price, sources said.
OMCs sell diesel at Rs 34.86 a litre and petrol at Rs 50.62 a litre in Delhi. If Delhi prices are taken into consideration, according to the proposal, the private retailers would buy diesel at Rs 35.86 a litre and sell at Rs 36.86 a litre, thus reducing the price differential, which stands between Rs 12 and Rs 15 a litre on the two products.
Private retailers, like Essar and Reliance Industries Ltd (RIL), have been incurring heavy losses on their retail businesses, which have been suspended due to the disparity in international crude prices and retail selling price and the absence of a level playing field. With this proposal, the private retailers expect that their sale volumes would stabilise after three-four months and this will also allow them to keep their networks active.
On whether the private retailers can use the products sourced from integrated PSU refiners and divert them to the export market, sources said this was not possible as there is an in-built mechanism that will work as a deterrent. For example, if the product is sourced from a landlocked refinery, to transfer it there are elements, like inter-State taxes, that make the product price not very viable for export.
While Essar is selling petrol and diesel produce from its Vadinar refinery to PSUs, RIL, being an export-oriented refinery, is exporting the produce. RIL had set up approximately 1,400 retail outlets, while Essar has 1,300 through a franchisee format.
http://www.thehindubusinessline.com/2008/08/31/stories/2008083151250100.htm
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