Just running a petrol pump doesn't pay much

Just running a petrol pump doesn't pay much

N. Ramakrishnan

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.

http://www.thehindubusinessline.com/2002/08/11/stories/2002081101320100.htm

The ABC of Owning a petrol pump

How many people do you think bid for a petrol pump when an oil company puts one up for auction?

10? 20? 100? 1,000? Believe it or not, whenever an oil company issues an advertisement in a newspaper announcing the sale of a pump, an average of 5,000 people bid for it. Only one lucky person will get the allotment.

"This is what happens when supply is less and demand more," says Prakash Genani, former president, Petrol Dealers Association, Thane and Raigad district. "At present, there are sufficient petrol pumps in most cities in India. The real demand is in the small town and districts, where there is a real need. And this is why there is such a rush for pumps."

Those who are interested in applying for a pump have to fulfil a few simple criteria:

S/he has to be able to pay an application fee that ranges between Rs 500 to Rs 1,000.

His/Her annual family income must not exceed Rs 200,000.

None of his/her blood relations should own a petrol pump.

S/he should fall in the 18 to 60 age group.

S/he should file his income tax returns.

S/he should have a domicile certificate.

S/he will have to prove that s/he will be able to generate funds from the bank or from individual businessmen.

If s/he belongs to a scheduled caste or scheduled tribe, s/he should possess his/her caste certificate. War widows and ex-servicemen, too, must possess proper certificates proving their eligibility. The government also gives special allotments to people who are outstanding in their respective fields like art, music, literature, etc.

Why, though, do people have this fascination for petrol pumps? It just so happens that this is one of the most profitable businesses one can run, as there are many different ways to make money.

To begin with, the station owner gets a commission of 53 paise on every litre of petrol sold. On diesel, he earns a commission of 33 paise. The commission on different lubricants used for cars, motorcycles and trucks ranges from Rs 6 to Rs 7.

Besides, all petrol pump stations run service stations as a side business and this brings in extra income. Some of them use the extra space to run stores, travel agencies or rent it out to automobile mechanics.

On an average, a good petrol pump sells around 200 kilolitres (200,000 litres) of petrol and 100 kilolitres (100,000 litres) of diesel per month. Besides, it earns an average income of Rs 20,000 from the sale of lubricants and Rs 25,000 from the service stations. Thus, a net amount of Rs 184,000 goes straight into the owner's pocket.

There are expenses too. If a pump employs 15 people at an average salary of Rs 2,500, the total salary comes to Rs 37,500. If four more people are employed at the service station, their salary will average out to another Rs 10,000. The accountant will charge Rs 8,000 and his assistant will earn Rs 3,000. The electricity bill comes up to another Rs 20,000.

Even if the total expenditure averages out to Rs 76,000 a month, the net income on a petrol pump doing good business will average around Rs 100,000.

The real income, however, comes from the sale of adulterated gasoline. "The petrol sold in India is always mixed with 20 per cent naphtha. Pure petrol is not available in most petrol pumps here. If we provide pure petrol, the margin of profit will be too low," says a dealer on condition of anonymity.

Naphtha costs Rs 17 per litre, while petrol costs approximately Rs 33 per litre; so you can imagine the killing a pump can make by selling adulterated petrol. The only risk comes in the form of surprise checks by the petroleum ministry's anti-adulteration cell.

Another way of making money is by fudging the meter. This means pump owners retain one per cent of the fuel due to you when you go to fill your car. For example, if you fill one litre of petrol in your car, the pump meter will show one litre but your car would have received only 990 millilitres.

The kind of investment needed to own a petrol pump depends on the category under which it has been allotted.

Under Category A, the land, pump, cabin and everything else comes from the oil company. The owner just has to run the show. Under Category B, the dealer has to buy the land; the rest of the equipment is provided by the company.

If your pump falls in Category A, then you just have to run the show -- the company will provide you with everything you need. But if you belong to Category B, then you have to incur the cost of the furniture and buy the land. Your contribution could come up to a few lakhs, depending upon where you are buying the petrol pump and the kind of investment you want to put in. Every petrol pump also has to have a huge underground storage tank for petrol and diesel, where the quantity of fuel stored depends on your pump's output.

And how are petrol pump owners selected?

Every city/district has a three-member committee that decides on the allocation of petrol pumps. The committee consists of a retired high court or sessions court judge and two officers from any of the four oil companies -- Indian Oil Corporation, Hindustan Petroleum, Bharat Petroleum Corporation Limited and Indo-Burma Petroleum. The judge, who is the committee's most important member, can allot 200 points whereas the oil company officials have 100 points each. The candidate who gets the maximum points from the committee gets to own the gas station.

This is why Petroleum Minister Ram Naik argues he had no role to play in deciding who should get a petrol pump. The Opposition, however, lays the blame solely at his door; they claim it is Naik's responsibility to appoint the judges and, therefore, he has to take moral responsibility and resign as most of the accused dealers who were allotted pumps are supporters of the Bharatiya Janata Party, of which Naik is a member.

When the scam was exposed, Prime Minister Atal Bihari Vajpayee cancelled all petrol pump allotments issued after January 2000. But the old dealers, who got their pumps before the eighties, say it is nearly impossible for allotments to escape undue influence until such time as these allotments are made by the oil companies themselves.

A dealer, speaking on condition of anonymity, explains, "How can retired judges have the maximum points to decide on the allotment of petrol pumps? They don't know how this business runs. It is best that the oil companies allot the pumps because they know their business and will ensure they get best returns from their dealers."

"In fact, till the eighties, the pumps were allotted by the companies themselves. Then, the politicians realised they could make a killing if they got the right to do so. They brought the allotment under their jurisdiction, starting a controversy that has lasted over two decades."

http://www.rediff.com/news/2002/aug/09spec1.htm