Deregulation of Oil Market a Holocaust
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The deregulation on petroleum sector for the first time had paved the way for the Indian Multinationals as well as the foreign Multinationals to venture in to the Government controlled market since 1975. This new Entrants, on the strength of the Authorisation to market transportation fuel 2003, had immediately started their maneuver to set up their retail outlet network. In the beginning of 2005 it was almost like a competition run for the most, between RIL and EOL.
Although nothing match between both the companies besides their verbal counseling to maintain RSP (Retail Sale Price) at least one a penny less then that of PSU OMC’s under what so ever. EOL turned out to be the rabbit on the race first to get a hold of Franchisees in prime locations as their module of franchisee is less with investment, specific design and observation on construction then that of RIL, whose investment is very high with sharp observation on construction to maintain uniformity of all its RO’s (Retail Outlet) across the country. By the year 2004 EOL had 400 franchisee owned RO’s across India beside only one company owned RO at Mumbai Surat highway while RIL had 900 of its own. Failing to match with competitors, once in the middle of 2006 EOL announced its super ambitious plan to inaugurate 2000 Retail Outlets at one go, later that backfired due to the differential pricing of petroleum products and at the same time over 300 EOL franchisee threatening to desert Essar Oil Limited only to cause the collapses of high ambition.
Calculating the viability and the potentiality of the Northeastern market and to maintain Remote and low service area obligation of 11.5%, both Reliance Industries Limited (RIL) and Essar Oil Limited (EOL) announced the setup of Division office at Hotel Bhramaputra Ashok and 131 MRD Road Guwahati, Assam respectively.
The opportunity to deal in petroleum business and the private sector oil marketing companies breaking the barrier of selection procedure had encouraged many up-coming first generation entrepreneurs from northeast India. Therefore, it was a flow of application seeking franchisee for either of the company at the earliest. After, Logistic survey and thorough scrutiny considering economical viability, the respective companies started appointing of franchisee/dealers through out Northeast India.
The “Letter of Appointment” (LOA) from the companies to the Franchisees has ushered a new hope for the educated young entrepreneurs of the Region. The more enthusiastic franchisees started their site development and constructional works, simultaneously negotiating with financial institutions seeking financial assistance for the project. Each EOL RO’s constructional cost is approximately 40 to 50 Lac’s while RIL franchisees owned RO’s constructional cost approximately stands at 1 crore beside security deposits.
To avail such financial assistance the first generation educated young entrepreneurs of the heard hit Northeast had to mortgage House/Building, family agricultural field and many more life time earned valuable assets of family and friends.
It is to be mentioned that though the Government Reform Policy had opened various successful investment doors for the corporate house and encouraged many investment but the deregulation of petroleum market had hurdles from the initials days. The Government half hearted deregulation Policy and the total miss judgments of the market by the investors were the root cause of the pits. In the middle of 2006 when the volatile international crude oil market respite a bit, Essar Oil Limited desperation to mark their beginning in Northeast had forced a few of its franchisee to commence commercial operation only when the franchisees were on 60% completion of term sheet, while rest were fighting all odes till date.
The commercial operation did not last for more then couple of months, from the months of February 2007 the Company started fast changing towards the worst side maintaining only cut supply and verbal orders and instructions while shun all letter/written correspondence with its own franchisees. The commanding attitude of the Company and the fluctuation of Retail Sale Price of transportation fuels every alternate fortnight started taking toll on Franchisees. These affairs turned chronic leaving with no alternatives to compete with PSU’s Retail Outlets and company went out of way restricting/cutting supply. Still most of the franchisee stood by the Company till February 2008. The scenario turned worst in the month of March 2008 when RIL defying all obligations of Government Authorisation and PNGRB ACT.2006 announced closure of 900 company’s own Retails outlets and franchisee own by 30th of April 2008. Shell India Private Limited (SIMPL) asking its officials to search for Job else where. Essar Oil Limited although did not came out defying any obligation which may attracted legal complicacies but restored to dictate verbal threat to its franchisee for immediate closure of the pump or face noncompliance arbitration or many more legal complicacies.
During the phase of Feb and March 2008 Essar Oil Limited silently withdraw its Bihar, Jharkand and Orissa Divisional empowering Kolkata Regional office and absorbed its abandoned staff to Essar Foreign Acquisition and Essar Shipping and Logistics to avoid compensation. The company might have done the same with Guwahati Division office but most probably because of the award of Arakan Oil Blocks 16% stack in Cachar sharing with Premier Oil and ONGC and 100% of Arakan Oil Blocks in Dhamaji under NELP Licence have stopped them to do so.
The height of frustration for the franchisees crop up with Minister of Petroleum and Natural Gas addressing the Upper House (Rajyan Sabha) with the information of “RIL finally closed all it 1432 Retail Outlets across India” instead of making his move clear to panelise RIL, that made the last nail punched the coffin. These Private Sector Oil Marketing Companies entered the business knowing all the facts and calculated all risks as Mr. Deepak Mukharji of SIMPL once stated. They are only befooling their franchisees and the customers on justifying that government control over PSU OMC’s market pricing and is only responsible for the differential pricing, but that’s not the facts because ONGC, MRPL and NRL also do not enjoy the subsidy as that of other PSU OMC’’s licenced before 1975 i.e IOC (MD), IOC (AOD), IBP, HP and BP. Now, how can these private sector companies OMC’s justify the operation of PSU OMC’s like NRL, MRPL and ONGC?
The unwarranted and unprecedented development had cornered the franchisees to run from pillar to post of Essar Oil Limited only to request restoration of supply. The huge financial liabilities, mental agony and social stigma can be foresighted to reflect that of the cotton grower of Maharastra.
The Dawn fast turned Dusk for the Franchisees, only to evade pellet sound and match with rest of the country’s per capita income, they are in soup now. May be the Multinational companies will ever hardly understand the cry of distressed and may be the feeble voice will ever hardly reach Shastri Bhavan, New Delhi (The Ministry of Petroleum and Natural Gas).
They are born free but in chain today. Do these citizens have any right to survive? Who is responsible for the dejection cause? Who is the culprit, Private Companies or the Government? Will these Three Private Sector companies i.e. RIL, EOL and SIMPL shall be de-Licenced and panelised for defying the PNGRB ACT.2006? Will these franchisees be settled with benefits, who have suffered may be of Government half hearted Deregulation Policy or may of Private Sector OMC’s miss calculation?
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