Oil companies stop producing premium petrol, diesel

State-owned oil companies have virtually stopped producing premium or branded petrol and diesel as sales have plunged due to huge differential in rates when compared with non-branded or ordinary fuel.

The government last month cut excise duty on non-branded petrol by Rs 5.50 to Rs 9.28 per litre. It did not cut the Rs 15.96 a litre excise duty on branded petrol, and ordered the premium petrol and diesel be priced at cost.

This meant that price of branded petrol and diesel when up steeply. Branded diesel price saw a 43 per cent jump in price to Rs 65.81 while the prices of premium petrol went up by 9 per cent to an average of Rs 77.58 a litre in Delhi.

Regular unbranded petrol and diesel, heavily subsidized by the government, sell at Rs 67.90 and Rs 46.95 a litre respectively in New Delhi.

"Sales are almost nil zero," Indian Oil Corp's Director Marketing Makrand Nene said at the Petrotech 2012 Conference here. "There are no buyers (of premium diesel or petrol) at these prices."

An executive of Hindustan Petroleum Corp (BPCL) said the stocks that were lying before the September 15 price hike haven't exhausted yet and oil companies would supply branded fuel to petrol pumps only if there is a demand.

"We are rationalising the infrastructure," Nene said. "We will produce branded fuels only if there is demand from dealers."

IOC sells premium fuels under XtraMile brand, while Bharat Petroleum Corp and HPCL market the Speed and Power brands, respectively. Premium fuels contain additives that are aimed at improving engine performance and reducing emissions.

"In 2007-08, the price differential between branded fuel and non-branded ordinary fuels was just 60 paise a litre, branded fuels used to contribute 20-30 per cent of our petrol and diesel volume sales," said a senior official at BPCL.

Sale of branded fuels started to fall since 2009, after the government hiked excise duty on these products.

Branded fuels, which contain imported additives helps in improving engine life and reduce pollution levels, were introduced in 2002.

The reduced sales may eat into earnings at the three state-owned fuel retailers - Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp -- as they enjoy higher margins on the premium products.

Fuel retailers have spent crores of rupees in advertising campaigns to popularise branded fuels which they claimed added value in the form of superior mileage, lower maintenance costs, improved engine protection and smaller carbon footprints.

Petrol pump owners want to convert the tanks used for storing branded fuel to those for regular fuel.