At a time when the government is considering a "marginal" increase in petrol and diesel prices, about a third of fuel sales come under the category of premium branded fuels that are outside the price controls and for which consumers readily pay a premium.
In 2007, branded fuels, which offer better mileage and superior engine performance, accounted for about a third of revenues from retail sales of petrol and diesel, as against about 23 per cent in 2006, and 12 to 13 per cent two years ago.
Oil marketing companies sell high-performance petrol and diesel mixed with additives under brands like Xtra Premium (Indian Oil Corporation), Speed (Bharat Petroleum) and Power (Hindustan Petroleum).
The price difference between branded petrol and normal petrol varies from Rs 1.40 to Rs 1.70 per litre. For branded and non-branded diesel, the difference is around 60 paise. Diesel sales are four and a half times those of petrol.
The increasing volumes negate some of the retail losses from non-branded fuel sales. If the under-recovery is Rs 9 per litre for petrol, it drops to about Rs 7.30 in the case of branded petrol.
Last week, Indian Oil Corporation (IOC), the largest retailer of petroleum products, increased prices of its branded fuels Xtra Premium (petrol) and Xtra Mile (diesel) by 20 paise and 10 paise each.
The other two government-owned marketing companies -- Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) -- are also expected to raise prices soon, company officials said.
"There is no price control on branded fuels though it needs to be within touching distance of subsidised petrol and diesel. Otherwise, consumers would not be attracted," said a senior Indian Oil Corporation official.
The pricing freedom that the oil marketing companies enjoy for branded fuels could pave the way for surrogate fuel pricing freedom, as revenues from the segment are expected to increase.
The fact that Reliance and Essar are selling non-branded fuels at almost Rs 4 per litre more than non-branded fuel. "This proves that the market can absorb higher fuel prices," said a senior official with Indian Oil Corporation. "We are testing the ground (for more price increases)," the official said.
"This is the way forward. The oil marketing companies can decrease their marketing losses by raising prices of branded fuels," said a senior official in the petroleum ministry, requesting anonymity.
The three oil marketing companies currently have to sell normal petrol and diesel at government-controlled prices and collectively incur losses of around Rs 320 crore (Rs 3.20 billion) a day as a result. The government issues oil bonds to the oil marketing companies to partly offset their retail losses.
Raising diesel prices by even 50 paisa per litre would help cut retail losses by around Rs 54 lakh (Rs 5.4 million) per day for Indian Oil Corporation, another senior company official said. The company is losing around Rs 165 crore (Rs 1.65 billion) per day.
FUEL STEAM AHEAD
- Branded fuels, being outside price-control, help oil marketing companies reduce under-recoveries
- Revenues from branded fuels now account for around 35% of fuel sales against 23% last year
- Consumption of expensive branded fuel indicates higher price absorption capacity of consumers
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