Parikh charges up private oil retailers


Private refiners Reliance, Essar and Shell plan to re-enter the petrol pump business in a big way if the government goes ahead with the Kirit Parikh panel’s recommendation to have free market pricing in petrol and diesel.

The private refiners had shut their pumps down when crude oil jumped to $147 a barrel and the state-owned refiners compensated for selling fuel below costs by the government.

“Private refiners are closely watching the government move. Free market pricing of petrol and diesel now is the most appropriate as it is around $70 to $80 a barrel,” industry sources said.

The first indication of their aggressive intent came from Essar group chairman Shashi Ruia who said Essar Oil planned to increase its petrol pumps to 2,000 in the next few months from 1,450.

Sources in Reliance Industries said they would re-enter the business if the government provided a level-playing field to the private players.

D.R. Dogra, chief executive officer of Credit Analysis & Research, said “the complete deregulation may prompt private players such as Reliance, Essar and Shell to reopen their retail fuel outlets, putting pressure on the market share of public sector oil marketing companies.

“In the past, the entry of private players in the retail fuel market had resulted in an erosion of about 10 per cent in the market share of the public sector companies.”

PSU fears

Sources in the state-owned refiners said they would suffer immensely if the government just freed petrol and diesel prices, while leaving kerosene and LPG untouched.

“Private sector players would then have a field day because they can sell petrol and diesel at market-determined prices. Two-thirds of our losses are from cooking gas and kerosene,” the sources said.

The private firms had a market share of 14 per cent in 2006, but it had gradually reduced to a negligible sum following the spike in crude prices and absence of a compensating mechanism.

Reliance had to shut its retail operations down after global crude oil prices peaked. Essar and Shell India also closed some of their pumps, but when crude prices softened, they restarted some operations.

Free pricing

Arguing for free market pricing in its report, the Parikh committee said “a market-determined pricing system for petrol and diesel can be sustained in the long run by providing level playing field and promoting competition among all players, public and private, in the oil and gas sector.”

The report said a spike in crude price from $70 a barrel to $120 a barrel would result in an increase of around Rs 160 per month for two wheeler users and less than Rs 1,000 per month for car owners.