In less than 24 hours of bulk diesel pricing being freed from the state, private sector companies have begun preparing to profit on this opportunity.
The Centre decided yesterday to partially deregulate diesel prices and allowed the government oil marketing companies (OMCs) to supply diesel to bulk consumers at market-determined prices.
"The private retailers are expected to pose increasing competition for the OMCs in the bulk diesel segment. Further, the increase in diesel price is positive for city gas distribution (CGD) players, as CNG (compressed natural gas) and PNG (piped natural gas) were losing competitiveness in comparison to subsidised diesel," said K Ravichandran, senior vice-president, corporate ratings, Icra.
Hitherto private fuel retailers Essar Oil, Reliance Industries and Shell India form less than 10 per cent of the retail business. The three government-owned OMCs -Indian Oil, Hindustan Petroleum and Bharat Petroleum - dominate the retail business. The three also meet almost the entire requirement for bulk diesel users. Of the total annual diesel consumption of 70 million tonnes, around 20 per cent is bulk sale.
"Users always look for better services and we would be their source for alternate supply. The state-run oil companies, knowing they are market leaders, sometimes provide lousy services. We would fill that gap," said a senior executive from a private oil company.
Private fuel retailers said their sale of diesel to retail customers will continue to be very limited. But when the pricing is market-driven, as with bulk sales now, they would like to partake of the pie.
Bulk customers are in two categories. One is defence, railways and state transport undertakings, about 60 per cent. The other is industries such as power, cement and chemicals. "When it comes to railways and PSUs, it will be difficult for us to penetrate, as infrastructure, etc, is provided by the (oil) PSUs. Besides, they look at supplying fuel at an all-India basis. The balance 40 per cent bulk users will be up for grabs for us and we would not miss that," said the chief executive of a private oil company, requesting anonymity.
Diesel is the mainstay for all fuel retailers. Private OMCs have invested substantially in setting up retail outlets but due to lack of a level competing field, these were underutilised.
"With a 50 paise increase in retail prices, private players may not be enthused to push sales in the retail business. But when the diesel price is market-driven, it certainly will bring in private players into the fold," said a senior official from Indian Oil.