Financial Daily from THE HINDU group of publications
Sunday, Aug 11, 2002
Industry & Economy - Economic Offences
Just running a petrol pump doesn't pay much
CHENNAI, Aug. 10
AMID allegations of favouritism in allotting petrol bunks and the continuing disruption in Parliament, talk to a cross-section of petrol dealers and all of them are unanimous in their view that business is difficult, competition intense and profit margins tight.
Then, why does anybody want to pay several lakh rupees to get a dealership? How will they recoup their investment? When these questions are posed to the dealers, all that they say with a wink is: "You should know."
What is, perhaps, left unsaid is that such dealers will have to dilute both the petrol and diesel to make huge profits.
A Chennai dealer, who has been in the business for a few decades, answers without any hesitation that it is quite common to adulterate petrol with naphtha and diesel with kerosene, because of which the profit margins are much higher.
According to the dealers, profit from selling petrol and diesel is hardly anything to talk of. The dealers get as commission one paise per rupee of the price of petrol or diesel. Which means that if the petrol is priced at Rs 31.64 a litre in Chennai, a dealer will get 31.6 paise per litre as commission, and with diesel priced at about Rs 20 a litre, 20 paise per litre sold.
Is this enough to meet their expenses and make a profit? Hardly, say the dealers. However, the profit for them comes mainly from the sale of lubricants and engine oils, and the car wash and service facilities that most petrol bunks have. The profit on a litre of engine oil, according to the dealers, can be as much as Rs 10-15.
There are three types of petrol and diesel dealerships where the oil company owns the land and a dealer runs it; where the dealer owns the land as well as the bunk; and, finally a company-owned and company-operated bunk or COCO in oil company parlance.
Irrespective of the kind of ownership, the companies make all the investment in the facilities the number of filling pumps and the underground tanks to store the fuel. The dealer has to bring in the working capital to buy petrol and diesel and make money by selling the fuel.
Over the last few years, the companies have been gradually converting the second category of dealerships where the dealer owns the land and operates the filling station into the first category, where the companies own the land and the dealer operates the facility alone. This, according to company sources, is to ensure greater control and also provide more amenities such as convenience stores and ATMs.
According to the officials, the companies' investment in a petrol bunk, excluding the cost of land, will be about Rs 1 crore. Normally, the dealers will be required to store up to two days' requirement of petrol and diesel. Some of the dealers point out that they have earned their reputation of selling quality fuel and of accurate measure over several years and for this reason alone, they would be patronised by motorists not living in the vicinity of the petrol bunks. However, with the companies certifying the quality of fuel in almost all the bunks, those who had earned a reputation are slowly losing business, according to one dealer.
His argument runs like this: "Earlier, even those not living near the bunk used to come here to fill up petrol because of our reputation. At that time, there was no certification from the company about the quality of petrol or diesel supplied by us. But now with most bunks being certified by the companies for the quality of fuel, the same motorists do not find the need to go out of their way and come to my bunk."
According to some dealers, the convenience stores that have been set up in most petrol bunks do not bring them any major income while they have to spend a lot on air-conditioning and posting a sales person. In bunks that have convenience stores and ATMs, the dealers have been told not to have vehicle wash and service facility. The dealers have taken this up with the companies as it is a loss of income for them. The dealers' expenditure includes paying salaries for the attendants in the bunks, their uniform and electricity charges.
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