Dynamic fuel pricing puts dealers in trouble
The dynamic fuel price system launched in five cities a fortnight ago has dealers crying foul, though public sector oil companies have not got any feedback.
“We are in trouble due to an increase in risk and lower profitability,” said Arjun Singh, president of Chandigarh Petroleum Dealers Association. “Our stock value has decreased by 5-6 per cent as petrol prices have dropped by about ~3 a litre and diesel by ~2 a litre in the past 15 days. This will lead to dealers in other areas taking advantage of the situation. We want (oil) companies to bear the losses that we have suffered. Or there should be some increase in dealer commission, which is 2-3 per cent now.”
Industry analysts and officials said dealers used to stock up when prices were lower but expected to rise in the coming fortnight. “Dealers used to pick up or hold back (stock purchase) based on expectations of price fall,” explained Rahul Prithiani, director, CRISIL Research. “PSUs on certain days had to supply more and on some there was a lack of demand, which led to mismanagement of demand expectation. This will now go away. Dealers will not have the pricing delta they were playing on, but margins would remain. The business is being de-risked both for the oil company and the dealer.”
Since May 1, oil public sector undertakings (PSUs) have been offering fuel on a dynamic pricing model at Pondicherry, Chandigarh, Jamshedpur, Udaipur and Vishakhapatnam. The practice is common in several parts of the world but has been introduced in India as a pilot project in the five locations. State oil marketing companies said it was too early to decide if the plan was a success. A marketing official from one of the three PSU oil companies said: “We have not received any feedback, negative or positive. So, it is doing well. No decision has been taken on full roll-out. There has been no issue in terms of implementation.”
"We are currently having a pilot run of the scheme and dealers have been asked to submit a report on a daily basis,” said B Ashok, chairman, Indian Oil Corporation. “Once the pilot stage is over, we will come up with an overall report and take a call on a national launch.” Private fuel retailers have also started following suit. Essar Oil, for instance, is offering the same fuel price at its pumps in these five locations. Reliance Industries, according to sources, is also offering dynamic fuel pricing at some of its outlets.
Though state-run company officials said the response would be monitored for a longer period, others like Essar Oil do not expect a drastic change. “We have started dynamic pricing in those five cities. If all the 10 outlets in a city are trading at X rate, what can be the response? Consumers are not going to defer purchase to tomorrow,” said Lalit Gupta, managing director and chief executive officer, Essar Oil.
More on business-standard.com