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In May 2008,
Reliance Industries Limited (RIL), one of the largest private sector companies
in India, owned by Mukesh Ambani, announced that it was shutting down all its
petroleum retail outlets (RO) after incurring a loss of Rs. 8 billion1
in 2007-08. Murli Deora, Petroleum Minister, Government of India, announced,
"Reliance has informed that sales at their retail outlets was negligible due to
selling price differential between private and public sector ROs, leading to the
closure of all their 1,432 pumps in the country with effect from March 15."2
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RIL had accounted for around 3% of the total petrol
pumps operated in the country. Nine hundred of the pumps were operated
by the company and the remaining were dealer owned.3
RIL invested about Rs. 40 billion4 in setting up
these retail outlets, which were spread across various states of India.
RIL entered the petrol pumps business in 2005 and started selling the
fuel at a marginally higher price compared to the petrol pumps run by
government-owned oil marketing companies like Indian Oil Corporation,
Hindustan Petroleum Corporation Ltd., and Bharat Petroleum Corporation
Ltd.
The RIL outlets did good business and by 2006, they attracted several
customers despite selling the fuel at a higher price because they
offered good quality fuel in the right quantity and provided customers
with additional services like windscreen cleaning, car washing, etc.
The pumps had international appeal and most of them had an eatery
attached. With the crude prices in the international markets falling
during 2006-07, RIL sold the fuel at a price matching the
government-owned outlets.
But in mid-2007, with an increase in the price of crude oil, RIL
increased the price of petrol and diesel. The increase affected sales
adversely. The difference between the price charged by RIL and that
charged by the government-owned oil marketing companies became more
pronounced.
The latter sold the fuel at a price lower than their cost of production
as they were provided with subsidies by the government. Private players,
on the other hand, received no such subsidy. As a result, RIL's price
was Rs.6-14 higher than the prices at outlets owned by the government.
And despite selling the fuel at a higher price, RIL still lost around
Rs.3 on a liter of petrol and around Rs.6 on a liter of diesel.
Public sector retailers too lost around Rs.10 on the sale of every liter
of petrol and around Rs.12 per liter on diesel but the losses were
covered by the issue of oil bonds by the Government and the subsidies
provided by ONGC5 and GAIL
6.
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1] Nevin John, "Reliance to Use Closed Fuel
Outlets for Malls and Multiplexes," www.business-standard.com, May 12, 2008
2] "Reliance Shuts 1,432 Petrol Pumps,"
www.timesofindia.indiatimes.com, 6 May, 2008.
3] "Reliance Ind to Close 900 Petrol Pumps in Couple
of Weeks," www.chennaionline.com, March 25, 2008.
4] "Reliance to Shut All Petrol Pumps,"
www.mumbaimirrior.com, March 26, 2008
5] ONGC (acronym for Oil and Natural Gas Corporation
Limited) is an Indian public sector petroleum company. It's a Fortune Global 500
company and contributed to around 78% of India's oil and gas production.
6] GAIL (acronym for Gas Authority of India Limited)
is India's largest gas transportation company. |
