Essar Oil Ltd, India's second largest fuel retailer, has reopened about 350 petrol pumps it was forced to shut down due to heavy losses on matching petrol and diesel prices with hugely-subsidised public sector rates.
EOL Chief Executive (marketing) Raj K Varma wrote to the company's franchisees on July 13, asking them to reopen shut outlets and commission about 450 under-construction petrol pumps immediately on completion.
The company has 517 petrol stations, of which about 350 had shut down in April and the Mumbai-based firm temporarily halted commissioning of new outlets.
Essar suffered a loss of Rs 2.50 per litre on petrol and Rs 4.50 a litre on diesel, despite pricing them higher by Rs 2.50 per litre as compared to the retail selling price of public sector oil firms -- IOC, BPCL and HPCL.
"Effective July 16, 2006, because of further increase in international prices, this is expected to increase to Rs 3.50 per litre on petrol and Rs 5.50 per litre on diesel," he wrote.
The government is making good the losses made by public sector oil firms by issuing oil bonds and asking upstream firms like ONGC and refiners like CPCL and MRPL to bear a part of the burden.
"However, no such assistance is being provided to us and our representations in this regard, so far, have not borne any fruit," Varma wrote.
Essar has redrafted terms for the franchisees paying them 12.5 per cent ad-hoc compensation per annum on the total investment made in the petrol pump besides 5 per cent lease rental.
The closure of 350 outlets had seen Essar's petrol and diesel sales drop by about 95 per cent in June this year. The company sold just 300 tonnes of petrol as against 4,700 tonnes in June last year. It sold 1,200 tonnes of diesel as opposed to 19,800 tonnes of diesel a year ago.
Varma said the franchisees would continue to get special commission upto end June 2006 and the new payment terms would come into effect from July 1, 2006.
"We will review the situation once our refinery is commissioned and production stabilizes," he wrote.
Essar's 12.5 million tonnes refinery at Vadinar in Gujarat is likely to be commissioned by year end.
"However, if the international prices continue at present levels or increase further, we may be constrained to continue to operate as above," he said.
Do you want to discuss stock tips? Do you know a hot one? Join the Stock Market Investments Discussion Group
