As petrol pumps run dry, dealers cry foul, government push OMCs for supply boost

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She is the widow of an army man and runs a fuel retail outlet that was allotted by the government. Over the past month, the outlet has run dry three or four times, most recently last weekend, because of lack of supplies by oil companies and her staff had to deal with the ire of customers.

“I didn’t know how to run a business and I have worked very hard at it. So it’s tough to see customers angry if the pump is dry, even when all our payments are done,” the petrol pump owner said. “In this business if you lose their trust, they immediately move to another station.” she said.

She did not wish to be named or her location to be revealed for fear of jeopardizing future supplies.

WhatsApp groups of dealers have been abuzz with updates of petrol pumps running dry since the beginning of June, particularly in Madhya Pradesh, Rajasthan and Karnataka.

The Ministry of Petroleum and Natural Gas on June 15 conceded in a statement that there had been “delays and increased waiting time for customers” and attributed it primarily to “unprecedented” demand and “logistics issues at the local level”.

But the seriousness of the matter was evident from the fact that after meeting dealers’ representatives, the Centre announced on June 17 that it had expanded the scope of Universal Service Obligation (USO) to cover fuel retail outlets (ROs) in remote areas to ensure quality and uninterrupted fuel supply.

USO will make it obligatory for state-run oil marketing companies to provide petrol supplies to retailers across the country for the benefit of end-users.

OMCs have blamed the demand-supply mismatch to higher demand and shift of customers from private retailers who are charging higher prices. Petrol pump dealers say that it is only half the story.

“Delhi does not have significant bulk consumers who may be going to retail outlets for cheaper fuel nor does it have private fuel stations who are charging more. Then why were the pumps in Delhi facing the paucity,” asked Anurag Narain, president of the Delhi Petrol Dealers Association.

Narain, who is also convenor of a recently formed group of dealers from 17 states called Forum of Like-minded States, said dealers had made representations to the oil minister and since June 16, the supply of fuel to pumps has eased.

“The supply has been improving since yesterday afternoon after the minister intervened, which makes it clear that there was no scarcity but BPCL and HPCL were not supplying enough because they are making losses on retail sales.”

BPCL is short for Bharat Petroleum Company Ltd and HPCL for Hindustan Petroleum Company Ltd.

How it started

In May, petrol retailers cautioned the Central government that OMCs were rationing fuel supplies for retail sales to curb their losses and that it may lead to shortages and consequent law and order problems.

The Consortium of Indian Petroleum Dealers (CIPD) said in a letter dated May 20 that dealers were being pressured by OMCs not to sell more than usual volumes because they were incurring losses on retail sales.

The situation worsened as demand picked up even as fuel supplies remained low, dealers said.

“It is a fact that at specific locations in some states, there has been a significant increase in demand for petrol and diesel, with an increase being as high as 50% during the first half of June 2022 over the corresponding period of last year,” the government said in its June 15 statement.

“In particular, this has been noticed in Rajasthan, Madhya Pradesh and Karnataka. These are States where large quantities of supply was being done by retail outlets belonging to private marketing companies and where the distances from supply locations, i.e. terminals and depots, are longer,” the statement said.

Price freeze for 137 days  

Typically, OMCs – Indian Oil Corporation Ltd (IOCL), BPCL and HPCL revise retail petrol and diesel prices daily, based on the rolling average of international benchmark prices over the past 15 days.

But they left it unchanged for almost 137 days despite the benchmark crude oil prices soaring to a 14-year high of $140 per barrel in early March.

The government maintained that the prices of petrol and diesel are market-determined with effect from June 2010 and October 2014, respectively, as their prices are being decided by the OMCs.

But the OMCs' decision to leave prices unchanged even as Brent crude futures surged triggered speculation that they had been frozen due to state elections in the period. OMCs resumed increasing the price of petrol and diesel from March 22, but they may still be making losses on retail sales, industry entities said.

Pricing Pressure Continues 

Private companies including Nayara, Reliance Industries and Shell set prices on their own, but given the competition, they benchmark it to prices set by the OMCs.

In some locations the price of retail fuel sold by private entities is higher than that of OMCs, industry officials said. This has led to some customers turning to state-run OMCs.

Also, since the OMCs continued to increase prices of fuel sold to bulk consumers, even as there was a freeze on retail prices, many bulk buyers were buying from retail outlets.

“They are still making a loss of around Rs 18-22 per litre on petrol and diesel. HPCL has been slowly rationing supplies since the last four months. BPCL started rationing only in the last month; it was sudden and steep,” said A Tharanath, vice president, Akhila Karnataka Federation of Petroleum Traders.

“We have been getting messages from dealers from across the state that pumps were running dry. HPCL and BPCL have also suddenly stopped credit facility to dealers, which has made things more difficult,” Tharanath added.

At least four other dealers from different parts of the country interviewed by Moneycontrol echoed his comments. Most of them said that they had not faced such issues with Indian Oil.

HPCL and BPCL respond

According to the government, the increase in demand has been on account of a seasonal surge because of agricultural activities, bulk buyers having shifted their purchases to retail outlets, and a substantial reduction in sales by private companies.

“Current daily supplies are 20 per cent more than normal average supplies. Locations have been advised to clear all the executable indents on the same day,” an HPCL spokesperson said.

BPCL said demand had soared in certain states like Madhya Pradesh and Rajasthan due to reasons including lack of supplies and higher prices charged by private companies.

“We assure everyone that there is adequate product availability and supplies across our network in all markets, and request not to panic,” BPCL said.

HPCL also said, "Motor spirit (MS) and high speed diesel (HSD) sales during 1-16 Jun 22 are 44% and 42% respectively year over year.  It is to be noted that private oil companies have a sizable retail network presence in the markets and there has been a huge shift in both MS and HSD volumes to PSU OMCs due to dry outs/higher prices of MS/HSD at private OMCs."

Both BPCL and HPCL did not respond to specific questions from Moneycontrol whether they had been rationing supplies to curb losses.

Pressure from dealers

Dealers told Moneycontrol that their orders for fuel were not being fully met.

“Please execute the indent for our pump. Both HSD (high-speed diesel) and MS (motor spirit) are dry. Outlet is dry from yesterday. Advance payment is done as well,” read the message from one Karnataka-based dealer on a WhatsApp group where dealers coordinate with one of the OMCs.

Several such messages have been posted on the group.

Dealers said OMC executives had been asking dealers to minimize sales and accept reduced supplies, which were forcing many pumps to shut early.

In a letter on June 15, the Akhila Karnataka Federation of Petroleum Traders said: “Dealers are also being forced to opt for premium varieties of petrol; more of petrol and less diesel. Payment made in advance also would not guarantee supplies. While HPCL has resorted to a sudden credit squeeze, dealers are in a quandary as they have to arrange funds to make advance payment for the product from outside sources at higher rate of interest.”

In another letter to the government on June 14, the Forum of Like-minded States complained of a paucity of petrol and diesel supply from BPCL and HPCL and that the two companies had changed the mode of payment from credit, which was extended to boost sales, to cash and carry.

“It is noteworthy that IOCL has no such paucity/ arrangement, hence we fail to understand that despite all three OMCs being government undertaking corporations, why can't the supplies be shared/supplied from IOCL depots (which has no shortage) as has been done in the past so that there is no inconvenience to the customers.”

Universal Service Obligation

The government’s decision on June 17 to include fuel retail outlets in remote areas under the USO was aimed at ensuring quality and uninterrupted fuel supply to consumers.

The move was in response to dealers’ requests after supply disruptions started creating issues at petrol pumps in some locations.

USO will require OMCs to maintain supplies of petrol and diesel throughout specified working hours and meet specified quality and quantity standards. They ought to ensure availability of fuel to customers at reasonable prices.

That will require OMCs to walk a tightrope --they will have to ensure uninterrupted supply of fuel to retail outlets even as they incur losses on. Will this prompt them to increase retail prices of petrol and diesel? Consumers will be keeping fingers crossed.

This article was first published on June 17, 2022. It's been updated with HPCL's comment in the section 'HPCL and BPCL respond.'