Sales decline in India compels retailers to cut production of premium auto fuel

India’s state-run fuel retailers said that since mid-September they have practically stopped producing premium diesel fuel and gasoline products due to a sharp decline in sales resulting from recent steep price hikes. The three fuel retailers, Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp., raised their premium diesel prices the week before by as much as 43%, to an average of Rs65.81 (US$1.22) per liter in New Delhi, after the federal government allowed them to sell premium automotive fuel at market prices. The retailers have also raised the price of premium gasoline by 9%, to an average of Rs77.58 (US$ 1.44) per liter in the capital. Fuel prices vary by region in India due to different taxation levels but regular, unbranded diesel fuel and gasoline, which are heavily subsidized by the government, sell at Rs46.95 (US$ 0.87) and Rs68.46 (US$ 1.27) a liter, respectively, in New Delhi.
The federal government raised prices of unbranded diesel fuel by 14% after a gap of 15 months to help state-run fuel retailers reduce losses incurred by selling the fuel at discounted prices. At the same time, it said the market could determine prices of premium, branded fuels. Indian Oil sells premium fuels under the XtraMile brand; Bharat Petroleum the Speed brand and Hindustan Petroleum, the Power brand.
State-run retailers launched branded fuels in 2002 to compete with private retailers such as Reliance Industries Ltd. and Essar Oil Ltd. They have invested millions of dollars in advertising campaigns to convince consumers that the higher price of branded fuels adds value in the form of superior mileage, lower maintenance costs, improved engine protection and smaller carbon footprints.
Nene said Indian Oil Corp., the country’s largest retailer by market size, will produce branded fuels only if there is demand from dealers. None of the executives revealed how much branded fuels contributed to their total sales before the price hikes. In the meantime, filling station dealers are reported to have approached the state-run marketing companies to convert infrastructure such as fuel storage tanks so they can be used for unbranded diesel fuel and gasoline. (September 17, 2012)