IndianOil restricts diesel supply, goes for premium play

IndianOil restricts diesel supply, goes for premium play
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First Published: Thu, Jun 19 2008. 10 28 PM IST

Large network: An IndianOil petrol pump. The company has 17,600 outlets, of which 11,000 sell premium diesel.(Photo: Abel Robinson/Mint)
Large network: An IndianOil petrol pump. The company has 17,600 outlets, of which 11,000 sell premium diesel.(Photo: Abel Robinson/Mint)
Updated: Thu, Jun 19 2008. 10 28 PM IST
New Delhi/ Ahmedabad: Transporters and diesel vehicle-owners may now have to pay more for their fuel as Indian Oil Corp. Ltd (IOC), the country’s largest oil refiner and marketer, has told dealers that it is going to supply them diesel at last year’s levels, asking them to instead sell the premium variety if demand exceeds supply.
The move comes on the back of the Centre’s decision on 4 June to raise the price of transport fuels by about 10%. Demand for diesel increased by more than 11% between 2006-07 and 2007-08.
Large network: An IndianOil petrol pump. The company has 17,600 outlets, of which 11,000 sell premium diesel.(Photo: Abel Robinson/Mint)
IOC has told its dealers that any increase in diesel consumption will have to be met by selling the premium variety, which costs around Rs3 more.
It has also instructed pumping stations that the premium variety has to account for at least a third of their total diesel sales, which the company says will discourage sale to non-transportation segments. “There is an excellent response for premium fuel from the users, due to the many advantages offered in terms of mileage and vehicle performance. Diesel is a transportation fuel and should not be diverted to the non-transportation sector,” an IOC spokesperson said, asking not to be named.
Premium fuel accounts for 20% of IOC’s total diesel sales. The company has 17,600 outlets, of which 11,000 sell premium diesel.
“The move is to encourage the sale of branded fuel and it will help...in generating more revenue,” said Rohit Nagaraj, an analyst at Angel Broking Ltd. “However, there may be some stir from the transportation sector on this.”
“Such practices will hit us in a major way and also affect the consumers directly,” said Gurinder Pal Singh, chairman of the All India Motor Transport Congress, a body for commercial transporters. “We will have to increase the freight charges by 30%. We protest such practices and are going on a countrywide strike from 2 July,” he added.
IOC, Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd have already stopped supply of subsidized diesel to commercial establishments. BPCL has partially capped sales by linking it to what fuel vends received last year, Mint reported on 22 May.
Sarthak Behuria, IOC chairman and managing director, had earlier indicated his company could resort to moves such as these to lessen losses.
“We will also aggressively sell premium products such as branded petrol and diesel. We have realized that a lot of sectors which used fuel-oil or naphtha have shifted to diesel due to the pricing. A lot of demand is coming from the non-transport sector,” he had said.
IOC posted a net loss of Rs414.27 crore for the fourth quarter of 2007-08, against a net profit of Rs1,502.69 crore in the same period the previous year, because of what oil firms call under-recoveries, or retailing fuel below cost.
India has a refining capacity of 149 million tonnes a year of crude oil, and IOC has a 40.4% share of the business. The company says it loses Rs300 crore a day because it sells petrol, diesel, kerosene and liquified petroleum gas at a loss of Rs9.70 per litre, Rs18.70 per litre, Rs36 per litre and Rs303 per cylinder, respectively. Before the latest price increase, it pegged it losses at Rs16.33 per litre, Rs23.49 per litre, Rs28.72 per litre and Rs305.90 per cylinder, respectively.
IOC sold 59 million tonnes of transport and cooking fuels in the year to March, half of which was petrol and diesel.
utpal.b@livemint.com
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First Published: Thu, Jun 19 2008. 10 28 PM IST