The other reason is that a large chunk of effective retail price comprises taxes which are levied equally on fuel sold by all companies. The Delhi retail price of petrol, for instance, is almost 49 per cent excise and value added taxes. This leaves little scope for sellers to manoeuvre retail price.
Deepak Mahurkar, partner and leader, India oil and gas industry practice, PricewaterhouseCoopers, however, said mark-ups are expected to lower, and reducing cost to service will become the focus for suppliers. “Significantly, the consumer in this segment never sees the product or feels. Therefore, customer service and product prices are very important to compete. With more choices, competition is bound to set in,” he adds.
An IOC executive, however, said private retailers cannot sell at rates more than that of public sector undertakings (PSUs) because in that case, consumers would not buy from them. “Competition should have ensured private companies that claim more efficient crude oil procurement and refining should have been selling at lesser rate. This, however, has not happened,” he said.
Now, the scope of competition among non-PSUs hotting up is likely to increase, with more private companies coming into the market. But, there is also likely to be wooing of dealers in lucrative markets, which means that the commissions being offered to them goes up.
Mahurkar said the earlier Rs 2,000-crore investment requirement helped in two ways. At that time, India needed crude refining and exploration investment. “Therefore, to attract investment, offering lucrative retailing was the purpose. Also, retail is a socially sensitive segment. Authorising only serious private investors was necessary to supply with responsibility. Shell, BP, Haldia, Nayara, and now Total could qualify,” he said. The retail sector developed well when needed, including in remote areas owing to entry barrier protection provided to oil companies. Also, the government could pass on subsidies through PSUs unhesitatingly.
“Now that attracting investment and capacity creation is not an issue any more, the need to open up the sector was felt by the government leading to various actions since 2002, like price decontrol and a significant one now of lowering the entry barrier,” said Mahurkar.
The new criterion of Rs 250-crore net worth ostensibly is different than the old one of qualifying serious and heavily invested in India players. “The government now wants to ensure uninterrupted consumer supply. Being a sizeable investment and a long supply chain, only those who can fund operations should enter,” said Mahurkar. The retailers and dealers invest upfront in land, construction of storage, forecourts, dispensers, and safety provisions.
Russian state-owned Rosneft-promoted Nayara Energy, which is the largest fuel retailer with 5,128 outlets, for instance, states on its website that apart from the cost of land, the average investment in an outlet ranges between Rs 70 lakh and Rs 1 crore, depending on the size of the retail outlet and the services provided.
Mahurkar also pointed out the government wants to ensure safety, prevent adulteration and pilferage, and ensure quality and quantity through regulations and standards. “In an open market, these aspects get better due to competitive pressure, too.”