Bulk diesel sales dip due to price differential
New Delhi   16-Feb-2013

It has been a little less than a month since bulk diesel prices were deregulated in India with an aim to reduce the under-recoveries of state-owned oil marketing companies (OMC). But, the Rs 10-a-litre price differential between bulk and retail prices proved too wide a gap for the policy to be successful.

According to IndianOil, India’s largest oil marketing company, bulk diesel sales dropped sharply in the last couple of weeks vis-à-vis a significant rise in retail sales volumes.

According to available information, of the 70-million-tonne (mt) diesel sales, institutional sales contribute nearly one-fifth or 12 mt. The buyers include the Railways and Defence (3 mt); core industries (4.5 mt) and; transporters including state transport utilities (4.5 mt). It is the last category which is seen responsible for changing the consumption pattern.

IndianOil Chairman and Managing Director R.S. Butola admits to the sharp decline in bulk sales. But he stops short of attributing it to a shift to retail.

“One month is too short a time for us to analyse the trend,” Butola told mediapersons on the sidelines of annual conference of Oil Industry Safety Directorate (OISD) on Thursday.

However, he doesn’t forget adding that oil marketing companies cannot stop an institutional buyer from refuelling their automobiles at a retail outlet.

Transporters, including both the private fleet owners and the State government-owned utilities, are using retail outlets for refuelling the fleet. Some state-owned transporters even invited retail dealers to bid for empanelment.

The result is evident in sales figures. Till December retail diesel consumption grew by approximately eight per cent a month. The trend changed dramatically after January 17, when the new pricing policy was announced. Retail diesel sales are now reportedly growing by 12-13 per cent a month.

And, in States such as Tamil Nadu or Karnataka some OMCs are even posting 30-40 per cent growth in retail sales.

In a parallel trend, industry wide bulk diesel sales are dropping by nearly a third or 14,000 kilo litres a day resulting in nearly Rs 14 crore revenue loss a day.

The concept of bulk sales was promoted to help institutional buyers. And, it is for the Government to decide if there should be a change in policy with regard to institutional buyers, Butola says. Till then, it is happy hours for road transport operators, except a minor discomfort on cash flow, as retail purchases are mostly cash based as against the rolling credit offered on institutional sales.

The discomfort is imminent to loss-making state government owned transporters.