Diesel Decontrol Opens Opportunities For RIL

The announcement of partial deregulation of diesel prices may bring cheer to RIL (Reliance Industries Limited), enabling it to augment its market for the fuel. Owing to the low pricing by sales state owned firms, private refineries could not tap the market and had to bear the brunt of the government policy. However, with the government giving a go- ahead to free market pricing, RIL will be in a position to bounce back to strengthen its market for diesel.

Prior to the policy change, the prices charged by state owned firms was Rs.10- 12 per liter lower than the market rates that put the private refineries, at a disadvantage. With state owned firms holding the helm of the market, RIL had no option but to rely on exports or state refineries, for their sale. However, private refineries will now be in a position to be price- competitive and hence, capitalize. Apart from that, this could pave the way for price war between private refineries and state owned firms, leading to a highly competitive market. Private refineries like RIL, the country’s petrochemical and energy giant may rule the roost by offering discounts to state transport corporations, farmers, fisheries, industrial units, etc.

With diesel accounting for 40% of all petrochemical products in the country and consumption accounting to 11 million tonnes a year, it is one of the most lucrative markets to monetize. The market permitted the foray of private refineries in 2003. However, the mounting international prices by 2006 kept them out of action. While state owned firms could afford selling at prices confirmed by the government, the private refineries found it infeasible to charge Rs.12, below the market prices.

RIL, the country’s largest private sector firm, muscled its way, rubbed shoulders with state owned firms as it accounts for an equal market share vis-à-vis the latter with respect to petrol, and seized 12% of the diesel’s market, by 2005.

Experts predict that the optimism may also have its repercussions on the share market wherein the company’s share price is expected to move up sharply. The conglomerate owned by Mukesh Ambani  reported a 24% increase in the net profit by third quarter year on year to Rs. 5,502 crore and a rise in the total turnover to Rs. 96,307 crore.