Reliance moves out of liquid fuel but sticks with gas
India’s biggest firm by market capitalization, Reliance Industries Ltd — which has decided to stop selling petrol and diesel at its fuel stations — will continue to sell liquefied petroleum gas (LPG) for automobiles, according to a company executive.
The owner of the nation’s largest refinery, Reliance Industries, will discontinue marketing petrol and diesel as it has not been able to compete with the lower prices offered by state-run operators, who are compensated by the government for selling fuel at a price lower than their cost.
With auto LPG, there is no such subsidy, placing Reliance on level with state-run companies. Both sides sell LPG at around Rs33 per liter in and around Mumbai.
A Reliance station sells between 5,000 liter and 6,000 liter of LPG per day on average in the region, an official at a company outlet said.
The Mukesh Ambani-run group has LPG facilities in around 200 stations across India.
“We are still receiving LPG supplies. There has been no directive on LPG so far,” an executive at a Reliance fuel station in Navi Mumbai, who did not want to be identified, said.
Another executive with Reliance said the company has no plans to expand its auto LPG facility to other stations.
A Reliance spokesperson refused to comment.
Essar Oil Ltd, which has around 1,100 fuel stations in the country, does not sell auto LPG at its stations.
Analysts say Reliance’s decision could be to protect its franchisees, as many of them have contracts and the company cannot suddenly take away a source of revenue from them.
However, auto LPG forms a negligible portion of the company’s revenues, they said.
Reliance does not segregate the figures for its fuel marketing business, and there is no way of knowing how much petrol, diesel or auto LPG contribute individually to its revenue.
“They can continue to sell auto LPG because they are not losing money by selling it. This also gives their franchisees something to hold on to, as they would have made a lot of investment,” an analyst with a domestic brokerage, who did not want to be named, said.
“There is also an element of investment involved in setting up an LPG dispensing system at a fuel station. It requires about 20 sq. ft, typically, to accommodate two cylinders of 7,500 liters each,” a manager at a state-owned Indian Oil Corp. Ltd franchise station said, but did not wish to be named.
The cost of the investment, according to him, is generally borne by the company. He did not disclose the amount of investment, though.
The cost of auto LPG has gone up in the past few months, but it continues to be a cheaper alternative to petrol. Car makers such as Tata Motors Ltd, Maruti Suzuki India Ltd, Hyundai Motor India and Mahindra Renault have launched or are planning to roll out LPG versions of their cars. Auto LPG sales rose 57.4% between April 2007 and January.
Something that the reliance dealers can hold on to for now.