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Oil dealers may move court against cancellations

BS Energy Editor in New Delhi

Most of those affected by the decision of the government to cancel allotments of petrol pumps and LPG and kerosene agencies made since January 2000 are expected to move court shortly.

However, since these allottees are new and have not formed any association yet, there is no concerted move by them to move court jointly.

"It is not long before we see a plethora of writs filed in courts all over the country against the government's decision. It will not be surprising if their claims are upheld by the court," said a senior official of a public sector oil company.

The official, who has been granting letters of intent to the successful allottees on behalf of his company, says there is no provision in the allotment letters that allows the company to cancel an allotment without assigning reason.

Not only is this against the principle of natural justice, it is also against the letter and spirit of the contract between the allottee and the oil company, he says.

The allotments can be cancelled only in three cases. First; if the allottee is found indulging in adulteration or any other malpractice on more than two occasions.

Second; it can be done in case the cancellation of licence is required in the interests of national security, like during a war when a site may be needed for housing or movement of troops or for putting up some defence equipment.

Third, cancellations are possible because of natural calamities like floods or earthquakes.

But, in most such cases, the petrol pumps and LPG agencies can be "re-sited".

However, the government is holding consultations with various ministries on the issue.

Senior officials of petroleum and law ministries are in touch to evolve a "fool proof" method to cancel the allotments.

Petrol pumps no gold mines

Contrary to the popular perception, petrol pumps are not gold mines for their owners. If run honestly, returns can at best be described as decent.

The main revenue for the petrol pump dealers comes from the add-ons like service stations, lubes and convenience stores. Pumps without these facilities and modest volumes can be as unremunerative as any other mediocre business.

The dealers get a commission of Rs 615 on every kilolitre of petrol and Rs 365 on every kilolitre of diesel sold. Of this, the oil company takes away Rs 50-60 a kilolitre for the investment made by it in the petrol pump.

They also have to pay their staff, electricity and water charges, interest on the capital invested by them in the outlet, which can vary between Rs 5 million and Rs 20 million depending upon the location and the facilities provided, and the interest on the working capital that they may have borrowed.

"All this leaves little for the dealers. This is one reason that a large number of dealers indulge in adulteration to supplement profits," said an industry source.

However, with the government coming down heavily on those indulging in such practices, this stream of revenue is also drying up fast.

This has also pulled down the "premium" on petrol pump licences from Rs 30 million in a place like Delhi about two years ago to Rs 12.5 million now.

The main reason for the petrol pump business still being seen as lucrative is that besides its "snob value", if an earnest effort is made to increase volumes by improving service.

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