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Essar to reopen fuel pumps, Reliance cautious

Posted by Yogesh on Friday, 17 October, 2008

NEW DELHI, Oct 17 (Reuters) – Indian private refiner Essar Oil will restart most of its 1,250 fuel stations by the end of December as a sharp fall in crude oil prices has made retail sales viable again, a company spokesman said on Friday.

It had shut almost all of its retail outlets starting from April last year as state-run rivals were selling fuel much cheaper, helped by government subsidies.

But Reliance Industries, India’s biggest private refiner, will keep its petrol pumps mothballed until the government changes its policy of subsidising sales from only state-run retail outlets, which makes private sales uncompetitive when crude prices rise.

“We have reactivated 300-350 retail outlets, mainly in southern and western India from August,” the Essar spokesman told reporters on the sidelines of a conference.

“In November, most of the stations in north and some other parts will be restarted,” he said, adding that by the end of the year, 70 percent of its outlets would reopen.

Essar runs a 210,000 barrels per day refinery at Vadinar in western India

Essar and Reliance had together captured about 17 percent of domestic retail market for diesel and accounted for 10 percent of petrol sales by 2005 before heavily subsidised sales by state-run firms knocked the private players out of the arena.

Crude oil prices fell to a 16-month-low of $68.57 a barrel on Thursday, down by more than half from the peak above $147 barely three months ago on rising U.S. inventories and concerns that a possible recession would slow demand further.

The average price of various grades of crude oil imported by Indian refiners fell to $62.9 on Thursday, the latest available data showed, close to the break-even level of $61 which would wipe out subsidies on petrol and diesel sold by state firms.

COMPETITION

Reliance, which stopped supplying fuel to its petrol stations since March this year, wants fair competition.

“We will open our outlets but we want level-playing field with state refiners. We can sell some volumes from the existing refinery in the local market but there has to be a change in the policy,” a Reliance official, who did not wish to be named, said.

While the government partially compensated state refiners by giving them bonds to make up the shortfall, private sector refiners had no such facility.

“The differential between international product price and domestic prices has narrowed. So, we are gradually reactivating our retail outlets,” the spokesman for Essar said.

He said Essar was selling diesel at a slightly higher price than state firms, which follow government-set low prices. At one point, before Essar closed the pumps its diesel was priced at more than 60 percent the state prices, he said.

He said Essar was selling 8,000-10,000 litres of fuel a month from its existing retail outlets.

The exit of Essar and Reliance from India’s retail markets had increased the revenue losses of the state-run companies. Source Reuters

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