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Rediff.com  » Business » Oil firms to introduce lottery system for fuel dealers

Oil firms to introduce lottery system for fuel dealers

May 11, 2014 10:19 IST

The oil marketing companies (OMCs) — IndianOil Corporation, Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) — would soon introduce a lottery system to allocate dealership of fuel retail outlets to dealers.

This, the companies said, would not only help them contain the cost of setting up retail outlets but also bring in greater transparency to the process of short-listing fuel retailers for new locations.

The new directive would be notified after the new government takes over.  

A similar policy is followed in allocation of dealership in the liquefied petroleum gas (LPG). “The new policy would be notified shortly.

A lottery system will clear the myth that the allotment of fuel retail outlets is rigged,” said the marketing director of an OMC. 

With real estate prices going up and the OMCs spending anywhere between Rs 15 lakh and Rs 1 crore to set up a fuel retail outlet, the petroleum and natural gas ministry had issued a directive in December 2012 asking OMCs not to invest in opening of new retail outlets; the investment would be made by the prospective dealers.  

Last year, the OMCs had sought a review of this order. OMCs say, with real estate prices going up in all major cities and land owners not wanting to renew the lease, they could lose retail sites and, thereby, market share, too.

OMCs prefer to have site control and take a lease themselves. This helps them take over the outlet if anything happens in future.

However, with the new rule where the ownership would rest with the dealer, OMCs might not have any representation if the outlet shuts.

“The dealer can overnight terminate the dealership and we can lose the market in that area,” said an official with Indian Oil Corporation. 

For instance, OMCs are already facing a tough situation in Mumbai where many landowners do not want to renew the lease agreement after their term expires as they get other, more lucrative options.

In Mumbai alone, the OMCs have lost 35 sites. In the next three to five years, leases would expire resulting in the loss of around 70 sites.

At present, HPCL is the largest fuel retailer in Mumbai followed by BPCL and Indian Oil Corporation. “If not checked, the total number for petrol pumps in Mumbai would come down to 156, in the next five years, from the present 227,” said an HPCL official.

According to IndianOil Corporation, India’s largest fuel retailer, about 60 fuel retail outlets in the four metros are on the verge of closing down because the landlords don’t want to renew their lease agreements.

In Maharashtra, the oil industry had tenancy protection till 1999.

However, the Maharashtra Rent Control Act 1999 resulted in the removal of tenancy protection for oil industry.

Subsequently, numerous eviction suits were filed by landlords, which resulted in decrees by the courts for surrender of the sites. This is one reason why BPCL is looking at rural areas to expand its retail network.  

“We are focusing more on the rural markets and plan to set up around 1,200 outlets this year,” said a BPCL official. Last year, BPCL had set up around 1,000 retail outlets.  

The lottery system will also have the existing company-owned, dealer-operated and company-owned and company-operated arrangements in place where investments would made by both the company and the dealer.  

Petroleum dealers said they are not very optimistic about the move.  

“This directive would be confusing for the industry. On the one hand, the government grants dealership to private players and, on the other, it grants dealership to widows or dependents of those who died in war.

How will poor people bid and benefit in such auctions? Such details need to be considered,” said Ajay Bansal, secretary of the Federation of All India Petrol Dealers.  

A  jackpot  deal  

* The lottery system will help OMCs to contain the cost of setting up retail outlets and bring in greater transparency to the process of short-listing fuel retailers for new locations.  

* A similar policy is followed in allocation of dealership in the LPG.  

* A lottery system is expected to clear the myth that the allotment of fuel retail outlets is rigged.  

* According to Indian Oil Corporation, about 60 fuel retail outlets in the four metros are on the verge of closing down because the landlords don’t want to renew their lease agreements.  

* The lottery system will also have the existing company-owned, dealer-operated and company-owned and company-operated arrangements in place.

Kalpana Pathak in Mumbai
Source: