01/26/13 ~ MEGHA CAPITAL'S Blog

At 65 million tonnes per annum, dieselaccounts for nearly 40 per cent of all petroleum products sold in the country.Not surprisingly, it is a huge opportunity for private oil marketing companies.Now that the government has decided to decontrol diesel prices for bulk usersand allowed government-controlled oil marketing companies to raise retailprices in small monthly doses, private oil companies such as RelianceIndustries, Essar Oil and Shell India have a real opportunity on their hands.Bulk sales could be an immediate business, but in retail with a 45 paisa alitre increase, the current under-recovery of Rs 9.25 a litre will take 21months to wipe out, if future increases, too, are of the same order.

To be sure, private fuel retailers are no strangers to the market. Private fuel retailers had entered the sector after it was opened up in 2003. However, by 2006 most of them had started folding up their operations as international prices rose and it became difficult for them to compete with state-controlled Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation, which sold petrol and diesel at government-dictated subsidised rates. As a result, diesel sales were virtually negligible for private oil companies since their price was higher than the oil marketing companies by about Rs 12 per litre.