Mumbai: Retailers of petrol and diesel are demanding higher commissions after the government decided to decontrol fuel prices, in a move that could push up costs for consumers.
The Federation of All India Petroleum Traders (FAIPT), an industry lobby representing 38,760 retail outlets affiliated with the three public sector oil marketing companies, has written to the Union government asking it to fix dealer commission at 5% of the retail price, more than double the prevailing rate.
The letter, addressed to Union minister of petroleum and natural gas Murli Deora, said that fixing the commission as a percentage would automatically adjust dealers’ earnings as the price of petroleum products will now move with the market.
The government freed petrol prices and partially decontrolled diesel prices on 15 June, pushing up rates, and drawing the ire of opposition parties, which called a nation-wide strike on 5 July in protest.
Since April 2008, the public sector oil marketing companies’ retailers have been paid a commission of Rs1.20 on each litre of petrol and 66 paise on a litre of diesel, irrespective of price increases or cuts. That works out to a little more than 2% of current prices for both fuels in Mumbai.
Photo: Ankit Agrawal/Mint
A director of marketing at one of the public sector oil marketing companies confirmed the dealers’ demand.
“Any decision on this can be only taken by the government,” he said. He did not want to be identified.
Dealers claim that the costs of maintaining filling stations have gone up since 2008, while their commission has remained unchanged, leading to reduced earnings.
“Minimum wages paid to fuel pump attendants have been raised over time in line with government regulations, and electricity and water costs have also gone up. Our margins have become wafer-thin and are becoming unsustainable,” said Ashok Badhwar, president of FAIPT.
In the same period, retail prices of petrol and diesel have increased by 10.63% and 16.35% in Mumbai, respectively. Dealers also claim that rising fuel prices and changed guidelines for procuring fuel have lifted costs.
Ravi Shinde, president of the Petrol Dealers’ Association of Mumbai and owner of an outlet for the last 28 years, claimed that for the last six months oil marketing companies have been demanding upfront payment for fuel, which increases the interest burden.
“Earlier we could issue a cheque to the OMCs (oil marketing companies) that they would realize in 48 hours by which time we sold most of the fuel. Now, the money has to be paid upfront through electronic transfer,” Shinde said. “The bank is charging 13.75% interest, and it is difficult to service these loans with stagnant commissions.”
Neighbouring countries such as Nepal and Sri Lanka also pay commissions in the range of 4-5%, said Badhwar, a claim Mint could not independently confirm.
In January, Pakistan’s Economic Coordination Committee approved a proposal to increase dealer commissions for the sale of all petroleum products, except diesel, from 4% to 5%. Dealers’ margins for diesel, at 1.5 Pakistani rupees, (80 Indian paise), are also higher than in India.
Low commissions threaten small, stand-alone fuel retailers, Badhwar said. “Petrol pumps located in suburban and rural areas and along the highways might have to shut shop.”
On the other hand, the public sector oil marketing companies may have to offer incentives to dealers to ward off competition from private sector firms such as Reliance Industries Ltd and Essar Oil Ltd, analysts said.
“With companies like Reliance and Essar looking to move into cities, dealers may choose to shift allegiance if they are offered a better deal. Therefore, an increase in commissions for dealers is likely,” said an oil and gas analyst with an international audit and consulting firm. He did not want to be identified.
Cleaner fuel has also increased losses through evaporation. Bharat Stage IV fuel, introduced two months back, has a lower boiling point. Evaporation losses for petrol and diesel have risen to 0.8% and 0.4% from 0.6% and 0.2%, respectively, because of this, Shinde said.
“The quantity lost multiplied by the rising cost of fuel is a major revenue loss for dealers,” Shinde said.