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New players may close in on oil outlets

V Phani Kumar in Mumbai and Pradeep Puri in New Delhi

The government's decision to cancel the allotments of oil dealerships may prove a blessing for companies waiting to enter the oil marketing sector.

B-site dealerships may now turn to new players like Reliance Industries and Essar Oil, offering their developed sites. B-site dealerships are those with the land of the retail outlet belonging to the franchisee and the pump and equipment to the oil firm.

This could result in an earlier than expected rollout of the new entrants' retail plans, while reducing the state-owned oil companies' total number of outlets.

Ravi Shinde, president of the Petrol Dealers' Association, told Business Standard: "The owners of B-sites, whose allotments have been cancelled by the government, may now turn to new entrants like Reliance with their well-located sites. Also, our association is very much against the appointment of dealers through competitive bidding."

"In the case of A-sites (where the land is also owned by the oil companies), oil PSUs do not have the kind of manpower to manage things. Till the time a new dealer is appointed, the firms will have to ask their existing dealers to run the new dealerships as well," a senior official at an oil company said.

Officials at oil PSUs expressed concern over the qualitative issues involved in appointing new dealers through the competitive bidding process, which they say will bring in only the highest bidder, not necessarily the best.

"As the margins in this business are not very high, anyone with a high bid can resort to practices like adulteration to recover their investment," they added.

On their part, the oil companies fear the prospect of a deluge of litigation from genuine dealers, whose allotments have been cancelled by the government. So far, the oil companies have not received any formal intimation from the government on cancelling the allotments and have not written to the dealers.

However, the legal departments of these firms have filed caveats in various courts following the announcement by the Prime Minister's Office.

"Filing caveats in the courts is no guarantee that a stay order will not be issued. It is only an anticipatory move," officials at an oil company said.

A bonanza for oil PSUs

The government's decision to cancel the allotment of 1,134 petrol pumps since January 2000 has come as a bonanza for public sector oil marketing companies, which have been bracing themselves for competition from the private sector.

The oil PSUs were worried that many of the dealer-owned-dealer-operated petrol pumps in the country might switch over to the private sector in case the latter offered them a better commission.

Some of the private sector companies that have been bracing themselves to enter the retailing of transport fuels, are reportedly wooing many of the petrol pump dealers to switch sides. Officials in public sector oil companies said many dealers might not be able to resist the temptation of better returns offered by the private sector.

However, in case the prime minister's decision to cancel the allotments was not challenged in courts and the petrol pumps were auctioned, the officials said, the oil companies would make sure that they retained the ownership of these pumps.

The oil PSUs planned to offer the pumps' management to public only on commission basis, the officials added.

PM's relative may be a beneficiary

The allotment issue may take another twist on reports that a relative of Prime Minister Atal Bihari Vajpayee in Gwalior has been allotted a petrol pump.

Ajay Mishra, brother of deputy leader of the Opposition in the state Assembly Anup Mishra, also has a petrol pump allotted in his name. The two brothers are Vajpayee's sister Urmila Mishra's sons. Neither Ajay nor Anup was available for comment.

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