'If diesel is sold at market rates, wastage will come down'

S. Thangapadian, CEO (marketing) of Essar Oil, says correct pricing increases competition, and healthy competition would increase the quality of the product, which would ultimately rationalise prices.

How has the recent decision to free the pricing of diesel impacted Essar Oil's balance sheet?
The price revision should be seen in two separate verticals, one for bulk or institutional buyers and another for buyers at retail outlets. The price for bulk buyers is completely decontrolled. For retail vendors, the price is hiked by 50-odd paise every month. Still, the price difference at public sector retail outlets is Rs 10 (more) vis-a-vis ours. The impact on our balance sheet would only come after December or January, once the price gap reduces. Currently, there is no impact on our retail business as volumes are negligible. But we see the move to decontrol prices as a major positive.
 
Are you seeing any pick-up in your bulk diesel business?
Customers are discussing the price with us, but the current difference between retail and our offer price is huge, which is not translating into business. We hope that in months to come, some controls will be put in place as bulk customers are presently buying diesel at retail outlets because of the price difference.
 
What about retail and institutional sales?
Our retail sales are hardly anything to speak of because customers buy it from public sector outlets due to the price advantage. On the institutional side, of the total sales of 70 million tonnes, institutional sales account for 12 million tonnes. And (of that) we would have just sold around two truckloads of diesel, which is roughly 40 kilolitres.

Do you think differential pricing will work in India?
It has worked in several countries. In India, there is neither any planning nor do we have proper systems in place. There are several advantages in terms of tax benefits provided in other countries that has helped differential pricing. For example, bulk buyers do not get any VAT (value added tax) or excise duty invoices, hence they have not been able to take tax credits. Once these buyers start seeing the benefit of buying the diesel directly from us, they will come.
 
Are you still compensating your retail outlets?
Our retail business runs on the franchisee model, and we will support it till the existing price gap gets neutralised. The compensation is based on the investment the franchisee has made, and we are committed to compensate him till he gets a level playing field to do business.

Currently, we are seeing 50 paise increases in the retail price. But soon the country will go into election mode, first assembly, then general elections. Given this, do you see these price corrections continuing?
We don't think the government will change this mode of monthly price correction. I personally believe that if the market price is charged, wastage reduces and consumers rationalise utilisation. Hence, like any other commodity, diesel will be used in the proper way. Correct pricing would also increase competition, and healthy competition would increase the quality of the product, which would ultimately rationalise prices. I believe that politicians have understood the same.