By R. Sasankan

The Indian petroleum industry has been known to be a world of pelf, privilege and tight protocols. It has rarely ever flirted with the idea of competition even though the authorities have aired this notion as a virtuous policy-making objective.

Every once in a while the industry bestirs itself and sparks the hope that market forces will be given free play to determine outcomes in a tightly regulated industry. Recently, there was a buzz of excitement over a news report that Jio-bp, the joint venture of Reliance Industries Ltd and British Petroleum (bp), was ready to shake up the retailing segment by selling premium diesel mixed with detergents at a price that would be Re 1 per litre lower than that charged at public sector outlets.

Competition might be too strong a word to characterise this situation but the move has a symbolic significance that cannot be ignored. Market circles have confirmed the development but it has not triggered any tremor -- as yet. One reason for this is that the difference in price is too small to create a major impact. The price difference should at least Rs 2 per litre for it to lure buyers.

But Jio-bp may have its own logic to test the waters with this new price point. Premium diesel accounts for only 5 per cent of the total diesel sales. Still, it has relevance in a market which has been totally untouched by competition. Tomorrow, the price cuts could be extended to other products. If the private players can work up the courage and push for bold price cuts, then it could change the landscape where the public sector players still call all the shots.

So, is Jio-bp testing the waters? RIL is a corporate giant; its partner bp is also counted as one of the global oil majors. But their joint venture is a minnow in India. Other private players in domestic petroleum retailing include Nayara, which is backed by Russia’s Rosneft, and Shell India. All the three are heavyweights in international oil market but do not have a combined market share of more than 10 per cent in India’s petroleum retailing outlets.

These private players have suffered financial losses periodically as they are not in a position to raise retail prices every time that crude oil prices lurch upwards. Since April 2022, the PSUs have not revised the retail prices of petroleum products such as petrol and diesel. The private retailers simply cannot survive by raising prices alone.

I do not believe that Jio-bp is trying to challenge the PSUs by lowering the price of premium diesel price by Re 1 per litre. There was a stage when private companies could influence the government to change its policy with respect to PSUs. This is no longer possible. Jio-bp could be saddled with excess stocks if demand in Europe starts to slow down.

The PSUs do not have the full freedom to revise retail prices; they simply follow the guidelines laid down by the ministry of petroleum and natural gas. This has been a time-honoured tradition that is scrupulously followed irrespective of the party in power. The Congress, the Janata Party, the UPA and the present BJP leadership all have tended to stick to an unwritten convention when it comes to deciding the price of transportation fuels such as petrol and diesel. At times, this applies to cooking gas (LPG) as well.

The latest crisis in the international oil industry has been created by the war in Ukraine. Initially, crude prices surged. But later Indian companies started benefitting when they started to obtain price- discounted Russian crude. Of late, crude prices are on the downturn but the PSU oil companies are in no hurry to lower the retail prices as they want to claw back the losses they suffered earlier.

This would have been the right opportunity for private players to lower their retail prices below those charged by the PSUs -- at least for a short period of a month or two, which could have sent a valuable message to the PSUs and the consumer.

By adopting such a strategy, the private players are sacrificing a small share of the enormous profits they have made by importing cheap Russian crude since May 2022. Reports said that in January this year, Russian oil accounted for 27 per cent of the 5 million barrels per day of imports by India, the world’s third largest oil importer.

However, the private players in India still prefer to make more money by exporting products to Europe even at the cost of starving their domestic retail outlets. In one sense, the Indian private players prefer to follow the Falstaffian dictum that discretion is the better part of valour: they would rather sell their products in Europe than challenge the PSUs on their home turf.

It is this strategy that could have prompted the government to think of at least considering the appointment of a regulator. Successive regimes in India have considered transportation fuels like petrol and diesel as politically-sensitive products. As the country goes in for elections to state assemblies and parliament periodically, the incumbent in power has ensured that the prices of these two products do not rise close to elections. The profits of these oil companies to a great extent depend on the sales of these products.

However, the appointment of an independent-minded regulator will be inconvenient for the party in power. The private petroleum retailing companies will just have to reconcile to this reality as they fumble with strategic options to deal with a tough domestic situation.