IOC, BPCL & HPCL have set up 10,236 retail outlets in 3 years in anticipation of competition from private players like Reliance Industries, Essar Oil & Shell
State-run oil firms, preparing for fierce competition from Reliance Industries, Essar Oil and Shell, have urged the oil ministry to grant them freedom to spend heavily in setting up new petrol pumps and demanded that the government should lift the recent order banning such investment by the debt-ridden companies.
Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum (HPCL) have set up 10,236 retail outlets (ROs) in last three years and have purchased land at key locations along highways for new pumps, raising concerns in the oil ministry as their combined borrowings has soared to `150,000 crore. Government officials also said that they want to verify if the declared expenditure on pumps is inflated.
“Oil marketing companies used to invest between `20 lakh and `2 crore on each pumps depending on location etc. This money could be saved as people, mostly rich and influential queue for the dealership and are willing to invest,” an oil ministry official said.
Last month, Oil Minister Veerappa Moily had rejected state oil firms’ justification that the expenditure is an incentive for dealers to remain loyal to them. “The minister has instructed OMCs (oil marketing companies) to immediately stop providing financial incentives to private entities for setting up retail outlets because banks will give them loans if these outlets are commercially viable. And companies set up pumps only after ascertaining its viability,” the official added.
The oil ministry spokesman confirmed that companies have again approached the ministry to reconsider Moily’s decision. “The matter is under examination,” he said.
BPCL executive director Sharad Sharma has recently shot a letter to the oil ministry, asking it to withdraw the order as the move would also affect setting up pumps by economically weaker sections, particularly in rural areas. State oil firms reserve some dealerships for weaker section of society such as persons from scheduled castes and scheduled tribes.
“The government is aware that weaker sections of the society would not be able to spend money on setting up ROs. OMCs will help them in getting cheaper loans by providing necessary guarantees and margin money,” the ministry official said.
But oil firms are up in arms against the government’s interference in their commercial matters. “Such blanket restriction is likely to adversely impact long term expansion plans/growth of OMCs especially when decontrol of the sector on the cards,” Sharma said in the letter. State firms fear that Essar, RIL and Shell would poach their dealers with incentives after diesel is fully deregulated. On January 17, the government allowed state oil firms to raise the fuel’s rates by 50 paise every month till its price is aligned with market rates to reduce its subsidy burden.
After four rounds of diesel price hikes, companies’ revenue losses have been reduced from `161,000 crore in the last financial year to an estimated less than `85,000 crore for 2013-14. It may go down even further after direct transfer of cooking gas subsidy, oil ministry officials said. Petroleum ministry officials said state oil companies have huge lead and they should not be scared of competition from the private sector.
State-run oil firms, preparing for fierce competition from Reliance Industries, Essar Oil and Shell, have urged the oil ministry to grant them freedom to spend heavily in setting up new petrol pumps and demanded that the government should lift the recent order banning such investment by the debt-ridden companies.
Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum (HPCL) have set up 10,236 retail outlets (ROs) in last three years and have purchased land at key locations along highways for new pumps, raising concerns in the oil ministry as their combined borrowings has soared to `150,000 crore. Government officials also said that they want to verify if the declared expenditure on pumps is inflated.
“Oil marketing companies used to invest between `20 lakh and `2 crore on each pumps depending on location etc. This money could be saved as people, mostly rich and influential queue for the dealership and are willing to invest,” an oil ministry official said.
Last month, Oil Minister Veerappa Moily had rejected state oil firms’ justification that the expenditure is an incentive for dealers to remain loyal to them. “The minister has instructed OMCs (oil marketing companies) to immediately stop providing financial incentives to private entities for setting up retail outlets because banks will give them loans if these outlets are commercially viable. And companies set up pumps only after ascertaining its viability,” the official added.
The oil ministry spokesman confirmed that companies have again approached the ministry to reconsider Moily’s decision. “The matter is under examination,” he said.
BPCL executive director Sharad Sharma has recently shot a letter to the oil ministry, asking it to withdraw the order as the move would also affect setting up pumps by economically weaker sections, particularly in rural areas. State oil firms reserve some dealerships for weaker section of society such as persons from scheduled castes and scheduled tribes.
“The government is aware that weaker sections of the society would not be able to spend money on setting up ROs. OMCs will help them in getting cheaper loans by providing necessary guarantees and margin money,” the ministry official said.
But oil firms are up in arms against the government’s interference in their commercial matters. “Such blanket restriction is likely to adversely impact long term expansion plans/growth of OMCs especially when decontrol of the sector on the cards,” Sharma said in the letter. State firms fear that Essar, RIL and Shell would poach their dealers with incentives after diesel is fully deregulated. On January 17, the government allowed state oil firms to raise the fuel’s rates by 50 paise every month till its price is aligned with market rates to reduce its subsidy burden.
After four rounds of diesel price hikes, companies’ revenue losses have been reduced from `161,000 crore in the last financial year to an estimated less than `85,000 crore for 2013-14. It may go down even further after direct transfer of cooking gas subsidy, oil ministry officials said. Petroleum ministry officials said state oil companies have huge lead and they should not be scared of competition from the private sector.
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