Price Deregulation Encourages Reliance Industries to Consider Restarting, Leasing Fuel Pumps

In the hope that diesel prices will soon be deregulated from government control, Reliance Industries Limited (RIL) may restart some of their fuel pumps. In addition to this, executives aware of the development hint that the company may lease fuel retailing outlets to public-sector oil-marketing companies.

Private versus Public Players

In 2002, private companies including RIL and Essar Oil were able to capture as much as 15% of the fuel retail market. Sales declined and losses mounted when private marketers were unable to compete with the subsidized priced offered by state-owned companies such as Indian Oil Corporation, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation. By 2008, RIL was compelled to shut down its 1,432 fuel outlets.

RIL’s Plans to Restart its Fuel Pumps

With the re-entry of private players, the industry is expected to revive and create an environment spurring healthy competition. In light of the expectations that the prices of diesel, the most consumed fuel in India, will be deregulated, RIL is working towards developing a plan that will optimize returns.

An industry executive who is aware of the development said, “RIL has started talking to dealers to re-start the petrol pumps. Their strategy could be a mix of leasing out some pumps to OMCs and running some others on their own.”

A senior official from HPCL says, “There is an offer from Reliance Industries for leasing. But it is still to be evaluated. Some of their pumps are at a good location, so leasing them would save us cost of setting up a pump. … Once we have clarity on diesel pricing, we will look at the economics of the proposal.” Likewise, RILis waiting for better clarity on the deregulation of diesel prices.

However, official queries sent to RIL, Indian Oil and Bharat Petroleum Corporation Limited remain unanswered in this regard. Some executives at oil marketing companies (OMCs) hinted on condition of anonymity that RIL has initiated talks but the discussions are at a very early stage, where the proposals are yet to be considered by the companies.

Diesel Price Deregulation Imminent

The recent changes in the pricing regime raise hopes towards the imminence of deregulation of diesel prices. Since January 2013, the government increased prices by 50 paisa per liter each month. This move was made to cut the government’s subsidy bills.In addition to this, the global prices of fuel have also softened and the rupee has appreciated against the US dollar. These factors have helped OMCs make a profit on fuel.

If global prices continue to stay at current levels of under $95 a barrel and if the value of the rupee continues to remain stable against the dollar, consumers will further benefit with a reduction of diesel rates by INR2 to 2.50 per liter along with a policy decision to decontrol prices.

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