Mumbai: The fall in oil prices could bring private sector fuel retailers back in the game in the Indian market. Multinational company Shell, which was forced to close several fuel pumps six months ago, is now hitting back by selling its upmarket brand of petrol at Re 1 lower than public sector companies.
Being a private company, Shell is not subject to the price controls the government imposes on fuel and also does not get the benefit of any subsidy. Its prices move dynamically with the input costs and any fall is quick to reach the consumer.
"We are observing the situation. Our future will depend on crude oil price, the exchange rate and the Indian government's pricing mechanism," Surinderdeep Singh, managing director of Shell India Marketing, told Network 18.
The new strategy has come as a breather for Shell, whose tiny network of 36 outlets could not compete with the 36,000-strong network of public sector oil companies that sell fuel at official prices and get part of those losses covered by the government. At the peak of the oil market, Shell's prices were much above the public sector prices, rendering the private retailer's outlets unviable.
But the pumps are back in action now with prices marked down every 15 days, Singh said. The company doesn't have refineries in India and buys petrol and diesel from MRPL and Essar Oil refineries and selling price is reviewed with every change in procurement price.
For instance, in Bangalore, it is now selling petrol at Rs 59.95 per litre compared to Rs 61 per litre for Bharat Petroleum’s Speed. However, its diesel price is Rs 55.45/litre, still higher than Rs 41.50 being charged for branded diesel.
A public sector oil company official said it is the PSUs that still sell the most widely used unbranded petrol at lower rates. M Somaya, deputy general manager at Bharat Petroleum, said the private players’ price is still much higher than the Rs 57.17/ litre charged by the state oil companies in the same market.
Oil company sources say margins on petrol are improving substantially for them as international prices soften. The companies are reportedly making about Rs 4 per litre on petrol, however they are still losing about Rs 8 per litre on diesel. Private retailers like Shell can share part of the margins with the customers. The government companies have to worry about other losses on other products like LPG and kerosene.
The skew in the oil marketing business has been a grudge of the private fuel sellers ever since fuel retailing was opened up by the government. The largest among the private players, Reliance Industries (RIL), which has invested in about 1,500 outlets has also stopped selling from most of them.
The three private retailers, Shell, RIL and Essar Oil, have also lodged a complaint with the newly formed Petroleum and Natural Gas regulatory board on the issue. The private companies have stated that they are being driven out of the market by the public companies. The case has yet to conclude.
(Cuckoo Paul is Associate Editor in the new business magazine to be launched by Network 18 in alliance with Forbes, USA)
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