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Reliance and BP draft plan for fuel dealers to avoid closures

Reliance Industries Ltd (RIL) and BP Plc, which operate more than 1,400 fuel retail outlets under the Jio-BP brand name, are drawing up a compensation plan for dealers to stave off closure, said three dealers aware of the discussions.

On March 16, RIL nearly halved fuel supply to its dealers owing to losses of Rs 10-12 per litre daily on the sale of diesel. The company has not resumed fuel supplies fully.

“To avoid shutting down the retail outlets, RIL is mulling a few options for compensating us. This could be either by way of financial support, payment of overhead expenses to an extent or altering the fuel supply further,” said a dealer from Bihar on condition of anonymity.

In its earnings statement on May 6, RIL said that domestic retail prices of petrol and diesel have not increased in line with rising international prices, which has led to under-recoveries since February 22 for the entire fuel retailing industry, including joint venture Jio-BP.

Current Losses
“Under-recoveries adversely impact both the existing operations and the appetite to invest in the sector,” it said.

RIL had in 2008 decided to compensate dealers when the company shut retail outlets due to high crude oil prices and lack of support from the government, unlike that for its public sector peers.

The company had then offered to give ₹500 per kilolitre additional margin on diesel and Rs 400 per kilolitre additional margin on petr ..

Current Losses
“Under-recoveries adversely impact both the existing operations and the appetite to invest in the sector,” it said.

RIL had in 2008 decided to compensate dealers when the company shut retail outlets due to high crude oil prices and lack of support from the government, unlike that for its public sector peers.

The company had then offered to give ₹500 per kilolitre additional margin on diesel and Rs 400 per kilolitre additional margin on petrol for the outlets that opted to continue operations. Outlets that decided to discontinue fuel sales were given a 12.5% return on the capital employed by them in setting up the outlet.

“We have been given to understand by company officials that to avoid shutting down of the outlets, a compensation plan is in the works. Though fuel supply has not resumed and our pumps are running dry for nearly three-four days a week, if there is compensation to meet overhead expenses, it would be a big support,” said a fuel dealer from Gujarat.

Petrol and diesel prices were hiked 14 times in the March 22 to April 6 period after which there has been no increase. Fuel prices were not increased between November 2021 and March this year when crude was at $83 per barrel. Brent crude touched a high of $139 a barrel on March 7. On Thursday, Brent crude was trading at around $106.26 per barrel.

Officials from the oil marketing companies said they are currently incurring a loss of up to Rs 10 per litre on petrol and Rs 20 per litre on diesel.

RIL joint chief financial officer V Srikanth said, in a post-earnings presentation on May 6, that the company maximised diesel over aviation turbine fuel (ATF) for better economics. Reduced diesel imports by Europe from Russia and low global inventories will support margins, he said.

According to domestic brokerage Motilal Oswal, transportation fuel margin was at a 24-36 quarter high with continuing demand recovery and low inventory enabling margins to improve 17-72% in the March quarter. Among transportation fuels, the margins for gasoline (petrol) was up 17%, diesel by 71% and ATF was 10% higher on a quarter-on-quarter basis.

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