Despite absence of fuel subsidy for private retailers, Essar Oil manages to keep outlets going

The India-based conglomerate firm, Essar Oil Ltd., is now the only privately-owned fuel retailer in India able to keep all of its 1,400 petrol pumps operating while other private companies including Reliance and Shell have closed several outlets. As India’s three state-owned oil marketing companies continue to sell fuel at cheaper rates, Essar has kept its outlets open because of deals with gas distributors and its tie-up with the Indian dairy cooperative, Amul, which allows Essar to sell ice-cream, milk and butter. State-owned oil marketing firms Indian Oil Corp. (IOC), Bharat Petroleum Corp. Ltd. (BPCL) and Hindustan Petroleum Corp. Ltd. (HPCL), are compensated by the government for the losses they incur by selling fuel at prices that are lower than market rates. In the absence of subsidies, private companies cannot compete and are forced to shut down. Lalit Kumar Gupta, managing director and chief executive of Essar Oil, explained how the company manages to keep afloat: “Essar is paying its dealers 12.5% return on their investments as a condition that outlets will not be closed.” Gupta said that Essar keeps its outlets open even if there is no sale. (June 25, 2012)