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Petrol pumps unable to exploit oil companies with daily rates

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Source: The Economic Times
Wednesday, July 12, 2017

 NEW DELHI: Petrol pumps have made big money at the cost of oil companies by cleverly adjusting their inventory before the fortnightly price revision, the petroleum ministry has found, which officials say justifies the shift to daily changes in fuel rates although dealers opposed the move. 


A study of 1,500 high-selling petrol pumps showed gains of Rs 57 crore in a year by reducing inventories when prices were about to fall, and filling up their tanks with cheaper fuel just before a price hike. Some dealers even stored fuel in tankers, oil ministry officials said. “Dealers’ gain was company’s loss. That has now ended,” said an oil ministry official. 

However, petrol pump owners said very few of them made money by inventory management. “Some petrol pump owners may have done this,” said Ajay Bansal, chief of All India Petroleum Dealers Association (AIPDA). 

He said consumers also tried to predict the price trend. “Anticipating price rise, trucks would demand more fuel on certain days. But the study has failed to recognise that pumps registered higher sales on days they placed bigger orders,” Bansal said, adding that dealers had called off the proposed strike on Wednesday, which was called to protest daily price revision. 
 
The oil ministry’s study was based on a sample of 500 pumps each of Indian Oil, Bharat Petroleum and Hindustan Petroleum to understand how dealers reacted to impending price changes for a year and if that affected their income. 
The study took note of the orders made in excess or less than the average fortnightly sales for each pump. It found that these 1,500 pumps had made a net gain of Rs 57 crore in the period. Pumps controlled by Hindustan Petroleum made Rs 20.5 crore while those of Indian Oil and Bharat Petroleum made Rs 19 crore and Rs 17.5 crore respectively. These pumps also made losses in fortnights when prices fell but gained overall. 

The sample size of 1,500 is not big compared to a total of 54,000 staterun petrol pumps operating across the country but the study offers a glimpse of the way pumps had picked up the art of timing stock purchases. Based on their prediction of price trends, dealers would begin varying their stock purchases from the tenth day of the fortnight only, according to company executives. 

Bansal said companies pay a dealer a fixed commission per litre of fuel sold with which he has to cover all his operating expenses. The dealers’ income varies as they have to provide for inventory losses but the operating expenses such as wages and power bill stay unchanged. 

He said daily changes in retail prices exposes them to inventory losses when prices go down and leaves them with wide variation in income to handle a fixed operating cost. In the past three years, oil prices have remained very volatile, saddling companies with huge inventory gains or losses every quarter. 

ET View: Improve Services 
The consumer is finally reaping the benefits of daily price revisios, at least when it comes to purchase of petrol and diesel. 

The unrest among pump-owners is unjustified. Their demand for concessions, that too after having benefitted from gaming the price system, is absurd. There is no question of reverting to the previous price regime and pumpowners must acknowledge this. 

They must focus on improved services and value adds at the petrol stations to attract new customers and retain older ones. 


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