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Bulk users hit pumps for cheaper diesel after an unprecedented price hike

For the biggest diesel guzzlers, booking tankers directly from oilcos no longer makes business sense. For many, it's time to jump to the pump.

, ET Bureau|
Updated: Jan 28, 2013, 07.08 AM IST
For the biggest diesel guzzlers, booking tankers directly from oilcos no longer makes business sense. For many, it's time to jump to the pump.
For the biggest diesel guzzlers, booking tankers directly from oilcos no longer makes business sense. For many, it's time to jump to the pump.
NEW DELHI/HYDERABAD: For the biggest diesel guzzlers, booking tankers directly from oilcos no longer makes business sense. For many, it's time to jump to the pump.

The unprecedented rise of Rs 10 in diesel prices for bulk users has fuelled howls of protests from state firms running bus fleets, rattled airports and malls, threatened the viability of businesses in power-starved regions, and infuriated fishermen. Marine food prices are up as angry fishermen are busy protesting instead of fishing.

The clever ones, led by the fleet of state buses in financially savvy Narendra Modi's Gujarat, have already decided to sponge on subsidised diesel from retail pumps. From Thursday, 7,600 buses run by the state government have decided to fill their tanks - 5 lakh litre a day - from oil pumps. State Transport Minister Nitin Patel has asked Union Petroleum Minister Veerappa Moily to reverse the decision.

Trouble is also brewing for Delhi's sprawling international airport, which consumes 3 lakh litre a year, besides fuel used for over 60 mw of standby generation. "Yes we are bulk consumers and will be impacted. We are studying the impact," a Delhi International Airport official said.

Bulk users have own pumps at their premises. This worked out cheaper as they did not have to pay dealer commissions. But now the situation has reversed as bulk buyers are charged market rates while pumps sell the fuel about Rs 10 cheaper. The government hopes to wipe out huge revenue losses of oil firms through the latest move.

The new system is vulnerable to leakages and oil industry executives say malpractices cannot be ruled out.

Market Diesel Rate Spells Trouble for Malls, Theatres

"Some of the industrial users may come to general retail pumps and purchase subsidised diesel. Though bulk sales in containers from pumps are not allowed, some diversions are expected," a BPCL official said.

Bulk users hit the pumps for cheaper diesel after an unprecedent price hike
The good news for oil companies is that Moily is determined to gradually raise retail prices to the same level as bulk sales by 2014.

It is bigger trouble for malls, movie halls and restaurants, particularly in smaller towns where power supply is routinely cut for 10 hours or more every day, and electricity rates have risen steeply as states are under immense pressure to sort out the financial mess at their power utilities.

"It's a double impact with diesel prices as well as electricity rates in various states going up. Malls are charging us higher for utilities. In places where electricity deficiency is higher, cost for us is up 10-15%," said Deepak Marda, managing director, Cinepolis India, which runs theatres in Punjab, Maharashtra, Bihar, Gujarat and Karnataka.

Saeed Shervani, executive member of the Hotel and Restaurant Association of Northern India, said maintenance and fuel costs for hotels and restaurants will go up 20%, but most standalone and mid-scale restaurants cannot increase prices to offset diesel costs because the business climate is not upbeat.

"The worst impact will be on standalone mom & pop restaurants, which will have no option but to shut shop. In Gurgaon, there are 10-12 hour power cuts during the summer months and there is no option but to use gensets. The larger chains might be able to sustain but with lower margins," he said.

In Andhra Pradesh, where gas-fired plants are heavily underutilised or idle due to fuel scarcity, and inadequate transmission facilities deny them access to electricity from surplus regions, industrialists and businessmen are nervous. MV Rajeshwara Rao, secretary-general of the Federation of Andhra Pradesh Chambers of Commerce and Industry, said industrial operations would now be unviable and the price differential may encourage malpractices.

"Industry has been depending on diesel generator sets and power costs will now go up at least 25%, severely denting the margins of companies. Several industrial units depend on diesel generator sets amounting to some 400 mw of capacity, accounting for around 12% of total industrial power requirement," he said.

The Andhra Pradesh State Road Transport Corporation, one of India's largest state-owned transport undertakings with nearly 25,000 buses, fears a burden of nearly Rs 780 crore a year on account of costlier diesel.

A senior executive of APSRTC, who did not want to be named as he is not authorised to speak to the media, said, "The corporation currently buys nearly 65 crore litre of diesel a year, spending nearly Rs 2,500 crore. The new bulk purchase regulations will add a burden of Rs 11.89 a litre, including value added tax, or Rs 779 crore on 65 crore litre of diesel consumed a year. This takes the total annual fuel costs to around Rs 3,279 crore, where VAT alone accounts for some Rs 735 crore."

"The diesel price hike and bulk purchase norms have come as a deathblow to our corporation, which has been incurring losses over the last 7-8 years, mostly on account of hike in diesel prices, inability to pass on the burden to passengers, and growing competition from private fleet operators," he said.

Officials in Gujarat said it was ironic that big cars could fill cheap diesel while the common man's means of transportation - public buses - were burdened. Almost all of over 60 members of the Association of State Road Transport Undertaking are up in arms, but they are not optimistic as the association is headed by the secretary of department of road transport and highways, who is unlikely to oppose the government forcefully.

About 70 million tonnes of diesel are sold in India annually, including 11-12 million tonnes to bulk buyers, a senior official in IOC said. Moily defended the move. "It will immediately cut under-recoveries on diesel by about 18%," he said.

With inputs from Rajeev Jayaswal, Anindya Upadhyay, Ravi Teja Sharma & Nandini Raghavendra
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