The Hindu : Dealership cancellation: oil companies in a fix

Online edition of India's National Newspaper
Tuesday, Aug 06, 2002

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National

Dealership cancellation: oil companies in a fix

By Sushma Ramachandran

NEW DELHI Aug. 5. The cancellation of 3,158 dealerships — relating to petroleum products — allotted after January 2000 may be difficult to implement for those oil companies, which are already facing problems due to a shortage of dealers.

Besides, the areas being serviced by the various petrol pumps and LPG dealers are bound to face a shortfall unless the oil companies step up supplies to the surrounding areas. Another major hurdle is that the existing allottees are not likely to take the sudden decision lying down. The Petroleum Ministry maintains that the decision will not affect the allottees financially, as most investments on infrastructure are now being made by the oil companies themselves.

Even so, the Law Ministry is being consulted on the modalities of implementing the decision, which is widely expected to lead to litigation by the allottees.

The auctioning of these dealerships through competitive bidding also means that money power will be the ruling factor for bagging the lucrative retail outlets. As for future allotments of retail outlets for oil products, they have been handed over to the public sector oil companies after the administered pricing mechanism was dismantled on April 1 this year. According to the Petroleum Minister, Ram Naik, guidelines have been formulated for such allotments and will shortly be circulated to the oil companies.

The officials say that these guidelines have been worked out on the basis of a study carried out by the Indian Institute of Management, Ahmedabad. They stress that the issue of guidelines is only an advisory measure and it is not incumbent on the oil companies to follow them.

The only purpose is apparently to ensure that the entire process is transparent.

"If they want to make it more opaque then they can ignore the guidelines,'' the officials say. They also refute the suggestion that the oil companies are waiting for the clearance of their marketing plans from the Ministry to expand the dealership networks. The only criteria that has to be followed by both the public and private sector oil marketing companies, they say, is that 11 per cent of dealerships have to be located in remote and far flung areas. This is to ensure that these regions do not go "dry'' as far as oil products are concerned.

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