‘Daily pricing’ cutting into margins, say petro dealers

Since June 16, this year, oil companies have shifted to daily pricing of petrol and diesel. This move however has not gone down well with the dealers. They are upset that oil companies have taken this step to share their losses with the dealers even as their margins are low. And the loss is escalating due to the falling international crude oil prices.

There are 54,600 dealers across India (130 in Goa) and every dealer, as per norms, has to maintain a minimum balance of 4000 litres of petrol at all times. 

“With the daily fluctuation of prices, especially if the petrol prices go down, we lose on a daily basis. We went on strike on July 5 when we decided not to purchase from the oil companies and ensured that the normal customer is not affected,” said Paresh Joshi, president, Goa Petrol Dealers’ Association.

With the advent of GST and abolition of excise duty, the oil companies in India became aware that pricing of petrol and diesel was not under the purview of GST and hence would have suffered heavy losses. So they came up with the idea of ‘daily pricing’. With this, an average dealer who sells about 140 KL of petrol and 75000 KL of diesel incurred a loss of Rs 53,784 only on stocks, as margins for dealers are fixed.

In March 2012, the prices of petrol in Goa had gone up to Rs 65.34 per litre. VAT at the time was 20 per cent here when neighbouring states were charging VAT between 24-35 per cent. Mumbai had an additional 2.5-3 per cent Octroi. The resultant price of petrol in the neighbouring states was around Rs 78-79 per litre. The then Parrikar government got rid of the VAT completely in April 2012 and the prices of petrol per litre came down from Rs 65.34 to Rs 54.76 overnight, a difference of Rs 10.58 per litre. The revenue loss to the government was Rs 150 crore. At that time, a dealer was earning less than Rs 2 per litre of petrol. No change took place in diesel during those days. However, lot of vehicles from outside Goa would come in to fill their tanks and precisely for this reason Goa imposed an entry tax on all vehicles which did not have Goa registration numbers. Hence, the government could recover almost Rs 57-60 crore of the Rs 150 crore loss. This price of petrol in Goa remained similar from April 2012 to April 2015. However, this continuity broke down when Parsekar government stepped in and imposed VAT again but ensured that VAT would not go up beyond 10 per cent. In July 2015 the prices went upto Rs 63.41 per litre of petrol in Goa. Also, during that time the crude oil price in the international market kept falling. In the month of March 2016 the prices of per litre of petrol came down to Rs 50.17. However, the simple understanding was not to let the petrol price go beyond Rs 60 a litre and this was managed by VAT adjustment.

The Apurva Chandra Committee report which outlined the expenditure incurred by the dealers had suggested hike in commission for the dealers. The committee report also mentioned that a review of commission should be done twice in a year. However, much to the disappointment of the dealers, the Oil companies did not raise the commission from 2012-15. On November 4, 2016, oil companies announced that the commission of dealers will be hiked by January 2017 but yet again they were let down. Recently the Union Petroleum minister intervened and gave a deadline to the oil companies to put everything in order by end of July 2017.

“We are waiting for July 31 decision very eagerly and we are expecting a raise in our commission. We had also been assured that with daily pricing we will not suffer losses. However, till now from June 16 we have not seen any development in this regards and we are suffering losses on a daily basis,” said Mr Joshi.   

When this daily pricing was imposed, the oil companies really wanted to share their losses with the dealers as the excise duty was abolished. However, now the plans are afoot to increase the custom and import duty. With daily pricing, many of the dealers are also facing a problem of changing the price on automated vending machines on a daily basis as it has to be changed at 6 am. Since the vending units are not fully mechanised it takes at least 15 minutes to reset the prices on each vending machine.

Gaurish Dalvi, owner of Manguirish Service Center, Panjim said that, “With daily pricing, consumers are unaware of the price of petrol they are purchasing unless they reach the petrol station. Also their budgeting on petrol and diesel is now very dynamic. As far as dealers are concerned, we are losing a lot due to the daily changes, especially when the prices go down. Our margin is too meager to absorb these fluctuations.” 

Padma Kamat, partner at Gauri Car Centre, Porvorim also resonated on the same planks saying, “Our margin is too low and if we get a fair cushion on commission on July 31, we should be able to manage in the era of daily pricing.”