A nozzle pumps fuel into a car. (Photographer: David Paul Morris/Bloomberg)

Government’s Move To Cut Fuel Prices May Hit Private Retailers

The government’s move to cushion consumers from rising crude prices by asking state-run oil marketers to absorb a portion of fuel price cuts may hit private fuel retailers too.

“Yes, it will have some impact on marketing margins (of private fuel retailers) but that’s small,” said B Anand, chief executive officer of Nayara Energy, on the sidelines of an event in Delhi today. “…this is an abnormal situation and all of us need to share a little bit of the burden.”

The central government cut the excise duty on auto fuels by Rs 1.50 per litre yesterday and asked Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd. and Bharat Petroleum Corporation Ltd. to cut retail prices by Re 1 per litre. The move came after Brent crude prices recently jumped to a record $86 per barrel and the rupee depreciated over 12 percent against the dollar this year, making oil imports costlier.

Anand, however, said that this won’t change the expansion plans of Nayara Energy—one of India’s largest private fuel retailers that’s backed by the Russian oil giant Rosneft. The company, he said, plans to expand its network aggressively to over 7,000 fuel pumps in two-three years. “Price volatility remains a concern. Let’s see how the world economy works around.”

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Since 2010, when the government deregulated petrol prices and let them follow global trends, private oil retailers have ramped up their presence in India. The market share of private diesel retailers rose from 3.1 percent to 8.2 percent in the two years through March 2018, Minister for Petroleum and Natural Gas Dharmendra Pradhan informed the Lok Sabha in March. Similarly, market share of private petrol retailers surged from 3.5 percent to 6.8 percent in the two years through March 2018.

That trend might change. K Ravichandran, group head and senior vice president at the rating agency ICRA, said to BloombergQuint over the phone that with “the government touching the pricing of fuel”, retail expansion plans as well as marketing margins of private retailers will take a hit. “They (private retailers) would want more clarity before they decide on the capex.”

Anand, however, seemed unfazed. “We welcome the government’s move to bring down the taxes and give relief to consumers,” he said. “It’s a very progressive move and we will pass on the benefits to the consumers.”

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