August 17, 2005
 

Pay more for petrol, save the oil PSUs, help them advertise more!

Given that I travel a long distance to the IIM-B campus twice a week, nearly 80 km on Fridays and Saturdays, it is but natural for me to wonder about why petrol prices cannot be rounded off better and come up with ways to prevent the dealers from pocketing small change.

Nowadays, a petrol price hike is more or less guaranteed on a monthly basis because, as the honourable minister from Mayiladuthurai tells us, the beloved public sector units will suffer huge losses if prices do not go up in sync with international crude prices.

I must admit that I have no idea why we have four oil marketing companies (OMCs), viz. IOC, HPCL, BPCL and IBP. Why can't we have just one if they're all doing the same thing, and just at different scales? I'm fairly sure economies of scale would work out perfectly and more efficient production, refining and retailing would ensure lower costs and hence lower prices for consumers. As it is we have private players like Reliance & Shell setting up outlets at various places in the country, typically just outside the city to cater to highway travellers. Isn't there a danger of too many cooks spoiling the broth? Having so many companies in the same arena is perhaps to make it appear as a perfectly competitive market and hence make great economic sense. But we know it isn't, not when a huge chunk of those companies are government owned. Of course, the problem is that oligopolies work both ways: collusion to raise prices or fierce competition to reduce prices.

The minister points out that the OMC's made crores of rupees worth of cash losses due to increasing international crude prices. Yet, they have spent in excess of Rs. 700 crores on advertisements in the last three years. I have no idea what sort of calculator PTI (or Rediff?) uses, but the total works out to around Rs. 732 crores to me. Granted that the sum is over three years. But aren't these companies killing off each other? They're all effectively selling the same products, under different brand names. While one uses Sania Mirza as a brand ambassador, others use the likes of Anil Kumble, Irfan Pathan etc. So why should there be four different companies?

It really does seem like a waste of the government's money, i.e. our money, to sustain these many PSUs operating in the same field. I don't really care which company's petrol pump I go to. Do you? Should you? Perhaps not unless you've got some exclusive privileges that I don't. Perhaps not unless your vehicle refuses to accept any other brand of petrol/diesel.

Labels: petrol