Wednesday, October 13, 2010

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

    2 Comments:

    Blogger Piyush said...

    I am a petrol pump owner from shimla and believe me i haven't adulterated my fuel and i won't do it in future.
    But how can i earn enough profits?

    9:12 AM  
    Blogger sidhi said...

    Great thoughts you got there, believe I may possibly try just some of it throughout my daily life.

    Truck Sales Dealers in Chennai

    11:01 PM  

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