PSU oil companies should share feasibility study for new outlets

As a part of transparency in the appointment of new dealerships, the three public sector oil companies should give out feasibility/viability report to potential dealers, specify the return on investment (RO) and also provide an exit clause to them as well as the existing ones, a Tamil Nadu Petroleum Dealers Association (TNDA) official said.

Making it clear that he was not against the arrival of new competition in the form of new dealers, the official said: "If given a chance a large number of petrol bunk dealers would surrender their dealerships, take back their land and look at newer opportunities."

On Sunday, the three companies -- Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation -- announced their plans to add 5,125 new dealers in the state.

The companies as on April 1 had a retail network of 4,844 petrol bunks in Tamil Nadu and if the new plans fructify, then the total would go up to 9,969 outlets.

"The oil company officials had said the annual consumption of petrol is growing by eight per cent and for diesel it is four per cent. If that is the case then the expansion of retail network should also be about 10 per cent of the existing ones and not more than doubling of numbers," K.P. Murali, President of TNDA told IANS.

He said the average sales per month per outlet in Tamil Nadu is about 120 kilo litres. The sales growth is happening in select pockets and not across the state.

"The oil companies should provide the potential dealers a viability report of the petrol bunk in the areas they intend to put up and also the probable return of investment (ROI). This would enable the potential entrants to take an informed decision.

"The oil companies should also provide an exit clause for the new and existing players. In most cases the land on which the petrol bunks are located are leased to the oil companies for long period by the bunk owners.. As a result many of the existing dealers are not able to exit," Murali said.

"If given a chance nearly 50 per cent of the petrol bunk owners who have given their land on long term lease to the oil companies will exit the business as the returns are not lucrative as compared to other types of business."

According to Murali, for the public sector, oil companies having more dealerships will be an entry barrier for dealers of private players like Essar but the investment may not be profitable for their own dealers.

He said the oil companies should reimburse the costs incurred by the dealers in full.

He said unlike the brand equity or loyalty enjoyed by consumer durable companies or even restaurants, the oil companies or their products do not command any brand equity.

"It is only the dealerships that command consumer loyalty. There are bunks where vehicle owners would queue up to fill fuel in their vehicles on the perception that the oil sold in those outlets are not adulterated or there measurements will be correct," Murali said.

The one advantage that dealers of government owned oil companies enjoy is the assured supplies and support for the equipment.