Mumbai: Oil marketing companies (OMCs) are looking to wind down discounts on fuel purchased via electronic means, three people aware of the plans said, more than a month after they trimmed such discounts for fleet customers using loyalty programmes. The government had asked OMCs to give a 0.75% discount on card payments for fuel purchases, against the backdrop of a widespread cash crunch in late 2016 after it withdrew high-value currency notes. More than two years later and much after the cash crunch ended, the discounts continue, straining OMCs.
Apart from the cash discounts, the government had also directed OMCs to bear the burden of card payment charges called merchant discount rates (MDR), which is usually paid by the retailer.
“Our concern is that the discount level should be reduced because it is draining us of cash. This also something that we are not able to pass on to the customers. In addition to these discounts, we also bear the MDR," said an official from one of the OMCs requesting anonymity.
The three state-run OMCs—Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL)—give a cashback equivalent to 0.75% of the value of fuel purchased using credit/debit cards and e-wallets. The discount is credited to the buyer’s account within three days of the transaction.
OMCs did not expect the discount scheme to last this long. As of now, it ends in March 2019.
OMCs paid ₹ 1,165 crore in e-payment discounts and ₹ 266 crore to banks for bearing MDR, totalling ₹ 1,431 crore, in 2017-18, according to figures from these companies. For this fiscal, they have estimated a higher cash outgo of nearly ₹ 2,000 crore.
“Our expense on incentives (e-payments) is budgeted close to ₹ 650 crore for the current year and MDR budget is around ₹ 107 crore for this fiscal," an Indian Oil spokesperson said in an emailed response. BPCL and HPCL did not reply to emails sent last week.
However, the number of digital transactions for OMCs has jumped from 10% in 2016 to up to 25% so far this year.
“We expect to close digital transactions at a higher number this year. While it is a drag on our cash reserves, one has to consider that it is also helping us digitize our operations. Additionally, we don’t have to run to the bank with the day’s sale. It is directly credited to our accounts through e-payment," said the second of the three officials quoted above.
To stem their cash outgo, last month, the OMCs reduced the discount for all fleet customers using loyalty programmes from 0.75% to 0.25%.
“Each oil company has its own fleet card programme. For these customers, because they are already enjoying other loyalty benefits, we decided to reduce the incentives on e-payment. That is one way for us to reduce the cash outgo," said the third person quoted above.
OMCs fear that with several state assembly elections slated for this year ahead of next year’s general election, the government may not allow them to increase fuel prices daily. That may also have a bearing on their revenues.
“With elections ahead of us, we may not be able to increase fuel prices daily and with the e-payment incentives continuing, it may be a double whammy for OMCs," said the second official quoted above.
India, which imports 80% of its total crude oil consumption, is highly vulnerable to international oil price shocks and government intervention has ensured that the transmission to domestic prices be largely asymmetric.