Cashless discounts: Fuel retailers may ask govt for compensation
Mumbai: State-owned fuel retailers are planning to approach the government to compensate them for their losses while giving a 0.75% discount for cashless payments, two people aware of the matter said.
In the wake of demonetisation, the government on 8 December announced a discount of 0.75% for purchase of auto fuel using credit and debit cards and e-wallets at fuel stations run by Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd. The discount came into effect on 13 December 2016.
“We may reach out to the government seeking compensation on the revenue losses arising out of the 0.75% discount we are currently providing. We plan to approach the government in a few months,” said the first of the two officials cited above, an executive from one of the oil marketing companies, on condition of anonymity.
A Mint report last month quoted OMCs as saying that the discounts could dent the revenue by around Rs1,100 crore till March. If the discount period is extended by another quarter, it would double. The OMCs said they do not want the discount period extended. While marketing business (which includes fuel retailing) forms 18% of volumes for IOCL, at BPCL and HPCL, it forms 40-50%.
Religare Institutional Research in a report dated 9 December said, “Assuming 70% of transactions at OMC outlets go digital, IOCL, BPCL and HPCL could see a worst-case earnings hit of 8-14% in FY18 if they are unable to pass on these costs (which is unlikely). There are additional benefits of improved transparency and efficiency.”
The OMCs did not reply to an email sent on Thursday morning.
“I think the discount helps our marketing strategy. It will bring more customers to us who can experience our services, if they already have not. We will have to see if the government agrees to compensate us for the losses,” said the second official, another OMC executive, on condition of anonymity.
For OMCs, diesel forms 70% of sales. “Assuming 70% of all transactions at fuel outlets move to the digital medium, the net discount for petrol/diesel works out to Rs0.3/litre. This can be comfortably passed on, as OMCs have been able to raise gross marketing margins in these products from Rs1 per litre to Rs2.6 per litre over the last three years,” added Religare Institutional Research in its report.
The OMCs operate (owned and co-owned with dealers) a network of 52,000 retail outlets, with annual sales of 92 billion litres of diesel and 31 billion litres of petrol (FY17E). OMCs said on Thursday that post-demonetisation, they have seen e-transactions go up by 50% in cities and around 30% in semi-rural areas. However, many rural areas are yet to start with digital payments.
OMCs said many rural outlets do not have the means to accept digital payments. Once that is facilitated, the number of transactions would go up.
Kotak Securities in a report dated 27 December said, “IOCL management indicated that it has not received any clarification from the government on compensation for discounts on fuel sales through digital means. However, the company will be able to recover the incidental loss through reduction in transaction costs and modestly higher marketing margins on overall sales, if not compensated adequately.”
OMCs expect that once people get used to the e-transactions, the discounts would cease.