BPCL digs deeper hole with dealers

BPCL digs deeper hole with dealers
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First Published: Thu, May 22 2008. 06 59 PM IST

BPCL’s move to limit the volume of extra diesel and petrol that pumps could ask for has also angered its dealers
BPCL’s move to limit the volume of extra diesel and petrol that pumps could ask for has also angered its dealers
Updated: Fri, May 23 2008. 11 15 AM IST
Ahmedabad/ New Delhi: Having cut commissions to dealers who sell its diesel and petrol through pre-paid smart cards in a bid to reduce losses, Bharat Petroleum Corp. Ltd (BPCL), one of India’s largest oil marketing firms, has ended up with a bigger problem.
A growing number of BPCL’s dealers have stopped accepting the cards, dubbed Petro Cards and SmartFleet Cards, through which the oil giant sells around 50% of its diesel and 40% of its petrol sold through dealers.
Compounding the problem, dealer resistance to the smart cards has also left fleet owners, who consume significant quantities of BPCL products, particularly diesel, fuming.
“We have received some complaints. Some dealers are discouraging the petroleum product sales through these cards and due to this the fleet owners are very upset,” confirmed a BPCL executive who didn’t want to be named.
Oil marketing companies such as BPCL have been hit by the sharp rise in global crude prices and the government’s reluctance to pass it on to the final consumer. As a result, and with crude oil trading at around $135 a barrel, the total “under-recoveries” at government-owned oil marketing companies in 2008-09 are expected to be around Rs2 trillion.
BPCL’s move to limit the volume of extra diesel and petrol that pumps could ask for has also angered its dealers
The three government owned oil marketing companies—Indian Oil Corp. Ltd, Hindustan Petroleum Corp. Ltd and BPCL—are collectively losing Rs450 crore in revenue on their daily fuel sales and are borrowing Rs3,500 crore a month to meet day-to-day expenditure. Petrol is being typically sold at a loss of Rs16.34 a litre, diesel at Rs23.49 per litre, LPG at Rs305.90 per cylinder and kerosene at a discount of Rs28.72 per litre. BPCL, which has a network of 7,400 retail outlets, is losing around Rs65 crore every day at the current government-mandated retail prices.
Alarmed over the financial instability of its oil marketing companies and the spiralling crude oil prices, the Union cabinet headed by Prime Minister Manmohan Singh is likely to meet on Friday to discuss a way out.
“I cannot rule in or rule out anything (price rise) at this stage,” said petroleum minister Murli Deora. “We are discussing all possible measures to help and protect our public sector oil companies...some remedial measures (urgently) need to be taken.”
Due to overall fiscal constraints, the government has delayed the issue of oil bonds to help cushion the impact of rising prices at the oil marketing companies.
Meanwhile, even if Deora would like to, it is unlikely the UPA government at the Centre would be able to increase prices as several key states are to go to polls this year ahead of a general election and inflation has become a significant issue. And, the government has recently raised petrol prices by Rs2 a litre and that of diesel by Re1.
In addition to reducing the commission on its smart cards, BPCL appears to have also angered its dealers with a new system, effective 21 May, that essentially puts limits on how much extra diesel and petrol pumps could ask for. Pumps that are selling more than 200 kilolitres per day will only get 10% more than what they sold in the year-ago month while those that sell a smaller amount each day will have their supply pegged at the year-ago levels.
“The scheme has been introduced on Tuesday and is expected to continue till August,” confirmed a BPCL executive. “A review will be done after that.”
Despite BPCL officials confirming the move, Deora vehemently denied that BPCL has deliberately restricted the offtake of petroleum products to its dealers. “We can never resort to such an anti-consumer practice,” he said. “I have spoken to BPCL chairman Ashok Sinha who has categorically denied such a move.”
BPCL had previously said it would have to shut shop in April because it can no longer absorb the losses and could run out of cash, as reported by Mint on 29 March.
As to the commission reduction, a BPCL dealer typically earns Rs1.02 per litre as commission on transactions made on the pre-paid cards. The company has now decided to pay Re1 per litre as commission.
“We have also decided not to accept payments made through smart cards issued by them,” said a BPCL pump owner who didn’t want tobe identified for fear ofreprisals. BPCL launched the smart card programme in 1999 and has 1,700,000 Petro Card and 80,000 SmartFleet Card members.
Of the 595,000 kilolitre of diesel and 510,000 kilolitre of petrol that BPCL sells a month, around 50% is sold through SmartFleet Cards and 40% through Petro Cards, respectively.
“They are in trouble and are just trying to save money from any source that is possible,” says Rohit Nagaraj, an analyst at Angel Broking Ltd.
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First Published: Thu, May 22 2008. 06 59 PM IST