RIL looks to reopen diesel retail outlets

In a bid to grab the opportunity created by diesel reaching market-parity price, Reliance Industries (RIL) has set the ball rolling on reopening its fuel retail outlets, after a gap of six years, and the company is in discussions with its dealers for a higher commission.

A detailed plan, covering issues ranging from dealer commission to the price at which auto fuel would be sold, is expected to be presented to the dealers in 20-25 days. Auto fuel dealers with whom Reliance Industries has held talks to re-open fuel retail outlets said the company has verbally confirmed to them that it would offer a higher commission for selling the auto fuel and that it might price diesel on par with that sold by oil marketing companies.

“After a bitter experience last time, we told RIL we would not re-open the outlets till we are convinced of making profits. RIL told us it would sell fuel at the same rate as that of oil marketing companies. The company may take a cue on fuel pricing from their possible partner Hindustan Petroleum Corporation Limited,” said an Ahmedabad-based fuel retailer. Reliance Industries and state-run Hindustan Petroleum Corporation have been in talks for a possible tie-up to further their fuel retailing plans.

While Reliance Industries did not reply to an email questionnaire sent last week, a senior Reliance Industries executive confirmed the company was in discussions with its fuel retailers to re-open the retail outlets. He, however, declined to discuss the specifics of the commission being offered and the price at which Reliance Industries would be retailing its fuel.

Brent crude oil has fallen to $96 a barrel, the lowest in 26 months, on falling demand from the largest consumer, China, amid over supply in global markets. This is giving a small profit of 35 paise a litre to the three oil marketing companies, a first in 12 years. The Indian basket of crude oil has fallen consistently from $115 a barrel in mid-June to $95.5 a barrel this Monday. Since January 2013, diesel prices have been raising every month by up to 50 paise a litre. In keeping with the practice, so far, rates have cumulatively risen by Rs 11.81 a litre in 19 instalments. Petrol price was market-linked in June 2010.

Gujarat-based fuel retailers of the Mukesh Ambani-controlled company said the firm is offering a commission of 0.50 paise and 0.75 paise for selling a litre of diesel and petrol, respectively, but the dealers are negotiating for more.

Fuel retailers said the commission being offered by RIL is much less than that paid by the three OMCs - Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation.

“OMCs offer us a commission of Rs 1.15 per litre on diesel and Rs 2.01 on petrol, while Reliance offers a mere 0.50 paise and 0.75 paise. We have been demanding if not higher, the commissions offered by Reliance should at least match that of OMCs,” said another Ahmedabad-based fuel retailer of RIL. Retailers are also of the opinion that Reliance’s practice of pricing the fuel higher than that by the OMCs would affect sale. “Even Essar offers a 50 paise discount over the OMCs' fuel prices, whereas Reliance charges a 50 paise to Re 1 premium. We will have to work harder to sell fuel since the consumers prefer fuel retailing outlets of OMCs over private outlets,” pointed out another RIL retailer.

Since July this year, RIL has been gauging dealers' preparedness and willingness for restarting the company’s 1,400-odd fuel retailing outlets in the country. According to retailers, Reliance Industries has decided to re-open company-owned, company-operated pumps first and spend Rs 50 lakh on renovating the same.

About 150 dealer-owned, dealer-operated or company-owned, dealer-operated outlets (CODO) would be re-opened at a later stage. At CODO outlets, the company takes care of the cost on account of services.

Reliance Industries had closed its fuel retail outlets in May 2008 owing to mounting losses, as it was selling fuel at rates much higher than the subsidised prices of state-owned oil companies.

RIL's fuel retail market share is less than 0.5 per cent.

In 2010, around 75 fuel retailers in Gujarat had decided to exit the RIL dealership and sought reimbursement of the investment made. The dealers had said they invested between Rs 2 crore and Rs 4 crore in each outlet. Depending on the location, the cost of land was between Rs 1.5 crore and Rs 3 crore, with another Rs 30 lakh to Rs 1 crore spent for maintaining services at the outlets.