The nationwide rollout of petroleum outlets by India’s largest private sector company Reliance Industries Ltd could be in jeopardy as it faces intense resistance from its 880-odd dealers over declining sales and unviable operations.

RIL has permission to open 5,500 outlets, but has been able to set up 1,266 so far — 381 of which are company-owned and company-operated.

Most of its 885 dealers are complaining of a decline in sales from an average of 20,000 litres a day to 2,000 litres a day across various states. With dealer margins of just Re 1 a litre in case of petrol and 55 paise for diesel, they find it difficult to pay salaries of the mandatory minimum staff strength of 17.

Sales have plummeted because Reliance’s diesel currently costs about Rs 3 a litre, more than the price charged by public sector oil companies. Petrol costs Rs 2.50 a litre more (Re 1 more in premium petrol). Reliance has had to price its products higher to cut its losses in selling fuel below cost.

Even though losses are mounting, dealers cannot shut the outlets either. A clause in tripartite agreements among dealers, the company and bankers prohibits closure. If an outlet is shut, RIL can take it over and will need to pay only Re 1 a month for 20 years as rental for the land. “We will be penniless if that happens,” a dealer in Chhattisgarh said.

• Reliance retails diesel and petrol at a premium Rs 3 and Rs 2.50 a litre

• Dealers prohibited from closing outlets under a clause in dealership agreement

• Company will find it difficult to get new entrepreneurs for more petrol pumps

• Reliance can take over the outlets at a rental of Re 1 a month for 20 years

Under the dealer-owned, dealer-operated scheme (DODO), entrepreneurs have to invest Rs 1 crore, plus the land cost which varies between Rs 10 lakh and Rs 1 crore, to set up the outlets. Dealers also pay an interest-free deposit of Rs 30 lakh to the company.

“We can survive another three months at most with such sales. I have an EMI of about Rs 1 lakh a month which I will not be able to pay with all the overhead costs,” says the dealer.

Though Reliance has offered to loan him funds to repay the EMI, he says taking the loan will be suicidal. “I can’t pay the bank and on top of it, if I take a loan at the same interest rate from the company to repay the EMI, I will be financially doomed,” he said.

Reliance declined to comment on the issue officially, but sources close to the development admitted the problem.

http://www.financialexpress.com/fe_full_story.php?content_id=130524