New Delhi, Jan. 18: Private refiners such as Reliance Industries and Essar are likely to benefit from the government's move to sell diesel to bulk buyers such as the railways and the defence at market price.
"Private oil marketing companies have invested substantially in setting up their retail outlets, but because of the lack of a level-playing field, these assets were under-utilised. Once a price parity is reached between retail and market prices, it will not only benefit consumers by providing them a choice but also help in the demand management of diesel," L.K. Gupta, CEO of Essar Oil, said.
The hike of about 20 per cent in diesel prices for bulk consumers, who comprise about a fifth of sales in the country, is likely to unleash fierce competition among oil retailers with private players expected to offer discounts to gain market share.
"Private retailers are expected to pose increasing competition for the OMCs in the bulk diesel segment because of complete deregulation of prices for the bulk consumers," K. Ravichandran, analyst with rating agency Icra, said.
When diesel prices were deregulated in 2003, private players such as RIL, Essar and Shell grabbed around 15 per cent of the market within two years.
Bulk users will pay Rs 56.88 a litre in Delhi, and the rates will be revised on the 1st and 16th of every month based on the previous fortnight's average oil cost.
Bulk users account for about 18 per cent of the diesel consumed in the country. India consumed 88 million tonnes of diesel in 2011-12 and 64 million tonnes till November this fiscal.
The major bulk buyers of diesel include the Indian Railways, road transport companies, power plants, and captive power plants of various industrial units. Of these, the Indian Railways alone consumes 5 per cent.
Analysts said private players had the opportunity to tap the Rs 13,000-crore bulk diesel market to their advantage with better refinery margins, discounts and the coastal location of refineries.
A state-owned oil company official said "market pricing of bulk diesel would have an impact on the business…we will have to work out a new strategy to deal with the situation as market dynamics would come into play. We are ready to take on the competition".
The Indian Railways' outlay on diesel will rise Rs 2,700 crore following the government deregulating the price for bulk users, a railway official said.
The national transporters' diesel bill has been mounting every year, and in the last fiscal it stood at about Rs 10,000 crore.
The railways procure about 250 crore litre per year from oil companies for its 4,500 locomotives.
It had recently hiked passenger fares in all classes to earn additional revenue of Rs 6,600 crore in a year. The fare hike will come into effect from January 21.