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CIPD seeks insulation of retail petroleum trade from price shocks

The reduction of Central excise duty twice within a span of six months has pushed the retail trade into a tailspin, vastly eroding its capital base and reducing the fuel purchase capacity.

May 29, 2022 / 03:27 PM IST
A worker stand next to oil storage tanks at the Pilipinas Shell Petroleum Corp. Shell Import Facility Tabangao (SHIFT) in Batangas City, the Philippines, on Monday, March. 7, 2022. Oil soared in Asia -- jumping as much as 18% early in the session -- after reports that the U.S. was discussing a ban on Russian crude imports sent shock waves through an already-reeling market. Photographer: Veejay Villafranca/Bloomberg

A worker stand next to oil storage tanks at the Pilipinas Shell Petroleum Corp. Shell Import Facility Tabangao (SHIFT) in Batangas City, the Philippines, on Monday, March. 7, 2022. Oil soared in Asia -- jumping as much as 18% early in the session -- after reports that the U.S. was discussing a ban on Russian crude imports sent shock waves through an already-reeling market. Photographer: Veejay Villafranca/Bloomberg

Retail petroleum dealers have urged the Centre to grant special status to their trade and also extend an interim relief by way of interest-free credit to help overcome the huge capital loss suffered on account of the reduction in excise duty.

The Consortium of Indian Petroleum Dealers (CIPD) has said the reduction of Central excise duty twice within a span of six months has pushed the retail trade into a tailspin, vastly eroding its capital base and reducing the fuel purchase capacity.

In a letter to the Oil Industry Coordinator, the CIPD national president M Narayana Prasad noted that the sudden cut in retail selling price diminished the working capital of the petroleum retail dealers and wiped out their finances as they had to carry the mandatory three-day stock.

This has caused unrest among the retail dealers and various district and state associations across the country have decided to go on a no purchase-no sale' campaign to vent their anguish over the unilateral reduction in retail selling prices, the president pointed out. He said the petroleum dealers operated on a fixed dealer margin, causing them to invest in higher-value inventory. The dealer margin, however, remained stagnant since August 2017 though other costs have shot up manifold.

This has made the retail petroleum trade commercially impractical and unviable. Reduction in excise duty is welcome in public interest but the retail dealers are left in the lurch as they carried a huge inventory, caught unawares of the price erosion, Narayana Prasad said. The Oil Marketing Companies should immediately address the issue by reimbursing the price difference caused by the excise duty cut.

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The CIPD Board wants special status granted to the retail petroleum trade to insulate it from sudden shocks and also ensure price protection. As an interim measure, the OMCs should extend interest-free credit to retail dealers till losses are recovered. The OMCs should indemnify and insure the trade against the impact of (cut in) duties and taxes in future, so as to ensure smooth transactions in the country Narayana Prasad said.
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