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Daily petrol, diesel price revision: Without required infra in place, expect chaos at pumps

The government’s decision to implement dynamic auto fuel pricing mechanism pan India from 16 June is likely to make consumers and dealers' life difficult, with adequate infrastructure system not in place yet.

It has raised concerns for petroleum dealers who are planning their next move: Should they go in for an all-India strike or have meetings with the ministry are some of the decisions the dealers are pondering over. Nothing has been decided so far.

The dynamic auto fuel pricing mechanism refers to the government’s decision to change petrol and diesel prices on a daily basis depending on the movement of crude oil prices in international markets and variation in foreign exchange rates.

Rates will vary from city to city as well as from petrol pump to petrol pump with Indian Oil Corp (IOC), Hindustan Petroleum Corp Ltd (HPCL) and Bharat Petroleum Corp Ltd (BPCL) deciding to follow a marginal differential pricing, PTI reported.

How it will play out

On midnight of 15 June, the price of fuel will be changed across 58,000 petrol pumps in the country. Of the total petrol pumps, only 40 percent have been automated. Of this 20 percent do not function fully, said Ravi Shinde, president, petrol dealers association, Mumbai.

The government ran a pilot project for dynamic auto fuel pricing mechanism in five cities in the country from 1 May -- Puducherry, Visakhapatnam, Udaipur, Jamshedpur and Chandigarh. “The dealers who were part of the project in Chandigarh were put to much hardship and financial loss,” said Sandeep Sehgal, president, petrol dealers association, Punjab.

The petrol dealers’ commission are on a fixed basis and on volume. In the pilot run by the government, the dealers had to physically come to the petrol pumps and change prices at midnight. “Coming to the petrol pump daily at midnight to change prices is just not practical as many of the dealers stay far away from the petrol pump stations,” said Sehgal.

Representation image. PTI

Representation image. PTI

Also, there were instances where dealers were at the receiving end of consumers' ire as they started arguing with the attendants after they found the price had changed by the time they moved ahead in the queue.

The petrol pump owners could ask their managers to change prices manually which could lead to occasional errors, says Shinde.

The new system to be introduced is likely to create confusion for consumers, too. For one, how do you ascertain whether the rate displayed is indeed the updated one? How do you ensure that you are not cheated? There is no way to check that, says Kaushik Madhavan, director, automotive and transportation, Frost & Sullivan. There will be scope for errors when the price is changed daily.

What the government has not spelt out is a monitoring mechanism on how they will ensure the right prices are being displayed at the petrol pumps. As of now the oil companies conduct surprise checks at petrol pumps to monitor quality and quantity of the fuel but this cannot be a solution to ascertain price fluctuations.

The transparency is suspect, effectiveness of the daily price change mechanism is also suspect and until that can be ensured it will be difficult for both consumers and dealers, said Madhavan.

However, dealers try to allay these fears. They say the price fluctuation is usually only in a few paise terms and on rare occasions could be a few rupees, not drastic enough to be manipulated.  Consumers could also ensure their fuel tanks are full, just as they do in the case of a strike. But it will be the freight carriers who will have to bear the brunt of the daily price changes, they said.

With regard to oil companies and the consumer, the impact will be neutral, say analysts but for transport companies, it could go either way, they said.

Government vehicles too take fuel from petrol pumps and clear their bills fortnightly. With the daily price fluctuation, the dealer will have to make a separate bill and that can be bothersome, they pointed out.

Dealers' problems

The dealers met with the oil companies on 29 May in Mumbai. With all petrol pumps in the country not being fully automated, the oil companies were asked to hold a seminar to explain the ground realities and also hear the difficulties faced by the dealers.

"The oil companies haven’t provided us any infrastructure. If only they could talk to the government to postpone the auto fuel pricing mechanism rollout till all the petrol pumps are automated, this plan can work out well," suggested Shinde.

The world over this system - daily fuel price revision mechanism, is followed though it is a new change for consumers and dealers in the country. “Abroad, the oil companies and big buyers of fuel enter into a contract on pricing so that both are in a win-win situation,” said Jaspal Singh, Partner and co-founder Valorise Consultants. “The dealer get a fixed price despite the daily price fluctuation. Maybe as the market evolves in India, the oil companies here too may put up a markup to protect the dealers.”

Way out

One of the ways to prevent fuel stations from fleecing consumers is to fully automate them and ensure that all the 58,000 petrol pumps are functioning. Another way is to let the oil companies be the sole owners of the fuel which are stored in underground tanks in the petrol pumps like it is abroad.

“When I buy fuel at a certain price and fill my tanks, the produce is mine now,” said Shinde. With the proposed daily fluctuation in price, the dealer’s margins will be eroded.

“Let the dealer be responsible for only sale of fuel through dispensing units and commissions depend on how much fuel is sold. Independent of crude oil price, let the dealer be ensured of his commission,” said Shinde.

Updated Date: Jun 12, 2017 21:41 PM

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