[ashis89]

Originally Posted by fordday

This is not a small figure actually.
For sake of simplicity, lets assume the retailer buys per litre petrol at Rs 100 and sells it at Rs 102.75
This means 2.75% gross profit. And this happens approximately in a two day turn around. They recycle this money, which means about 40% profit in a month.
Bank FDs give you only 7% in a year.

Here is a X post on how retailers work on 1% margin link

Originally Posted by SmartCat

In this bank FD example, we calculate returns based on how much we've invested. Rs. 1 Lakh invested gives Rs. 7,000 returns in a year.

Similarly, for the petrol pump business, you need to see how much the owner has invested in the entire business. For eg (just random estimates):

Land: Rs. 9.0 crores
Civil works: Rs. 0.7 crore
Inventory of fuel (say 30,000 litres): Rs. 0.3 crores

So here, you should calculate monthly/annual returns based on the entire investment amount = Rs. 10 crores. And not just on the petrol/diesel inventory of Rs. 0.30 crores.

And then there are operating expenses such as staff costs, electricity bills, cleaning costs, landscaping, etc. Even a small bunk with 4 dispenser machines and operating from 6AM to 10PM requires 12-15 full time employees and few part time/reserve ones.

For example, someone I know, operates a BP COCO bunk for the company. The land, machinery and investment are by BP. Operating expenses and fuel are paid by him. BP gives him a smaller commission per litre of fuel sold. His investment is a bank guarantee of 1 cr. and his profit is about 1L pm, give or take. Better than FD, yes. But lesser than what a good business can return and his capital is stuck (unlike FD).

[vishal9999]

Originally Posted by somersault

No Sir, this is not going to happen. Government will force them to receive a very big dividend.
My 2 cents.

Does this mean ,we need to buy oil company stocks, so we would be reimbursed by way of dividend or this has already been reflected in Stock prices.

[SmartCat]

Originally Posted by RunGaDa

What can be done to oppose this? The daily officer goer is not going to leave jobs and stop buying exorbitantly priced fuel

Buy EVs!

(joking, please don't attack me)

Originally Posted by NomadSK

It's a big big concern for the refining industry. There are enough studies to show a loss of 1.5-2% of petrol from refining to consumer due to evaporation losses during the transportation phase.

Is this problem is specific to petrol? Diesel does not have such evaporation losses?

Originally Posted by somersault

No Sir, this is not going to happen. Government will force them to receive a very big dividend. So its the taxes on fuel and profit sharing from all the profit by OMCs.

Dividends is normal corporate activity. And these dividends are declared as a percentage of profits. For a particular year, if the profits are large, there will obviously be "very big dividend" that year. Conversely, if the profits are small or it was a loss making year, the dividends too will be small or zero.

You ire should be directed only at excessive taxes on petrol/diesel. OMCs balance sheet will be healthy enough so that they can expand capacity.

This is valid for a normal corporate entity, not a government controlled one.

If a Govt does not treat OMCs like a normal corporate entity, that's how we end up with a sick PSU that bleeds money for decades.

[somersault]

Originally Posted by SmartCat

Dividends is normal corporate activity. And these dividends are always declared as a percentage of profits. For a particular year, if the profits are large, there will obviously be "very big dividend" that year. Conversely, if the profits are small or it was a loss making year, the dividends too will be small or zero.

This is valid for a normal corporate entity, not a government controlled one.

https://theprint.in/economy/rising-o...-govt/1793216/

[alpha1]

I have seen some folks in the thread are using the oil refiners and oil marketers interchangeably.
Even within the same firm (say Indian Oil), there is a transfer price mechanism established between IOC Refinery SBU and IOC Marketing SBU.
The IOC Marketing SBU is free to choose MS/HSD/LPG from any refiner in the world (based on lowest price and easiest logistics).
Similarly on the other side of the table, all refiners (even in India) get international prices (import parity prices) for their products. This price is not controlled by the Govt of India in any way but only depends on world's supply / demand based on economic and political scenarios, traded at major exchanges and hubs.

It is the Marketing SBU that has to bear the brunt of Govt's meddling in the pricing mechanism and they end up losing or making money depending on how generous the Govt is in allowing them price changes. This doesn't mean that everything is always hunky dory in the profitability of the Refining SBU since there are many times when the market driven crack spreads are too thin (product price minus crude oil cost) to be viable. {Side note; hedging is limited to less than 10% of crude oil bought, so they cannot limit their downside}

IOCL and BPCL are self-sufficient = almost the same capacity of refining as well as marketing.
HPCL needs to source eternal fuel = refining capacity is smaller than marketing demand
RIL & Nayara have low marketing infrastructure and penetration and hence refining capacity far exceeds marketing
MRPL, CPCL, NRL and others do not have any (significant) retail marketing infra, so are mostly pure refiners.
* I am referring only to the MS/HSD/LPG retail market in India (from where we buy petrol and diesel for our vehicles and LPG for our household)

This explain why each oil company has a different overall profitability depending on the prevailing crude oil prices, refinery transfer prices and retail market prices, and the situation changes every now and then (some times marketing is more profitable, some times refining is).

Originally Posted by SmartCat

Whenever a very large power plant is set up, the prices are set such that it makes a long term Return on Equity of 15%, as per the Electricity Act. It is quite likely that OMCs too have a similar profitability model.

Yes, you are right; back in the days the PSU refinery and petrochemicals capex investments were approved based on the project getting 15% IRR and 25-year life.
Sensational headlines like this thread title focusses only on opex side, while conveniently forgetting the huge capex that needs to be done and whose cost needs to be recovered.

I did some very approximate calculations way back. https://www.team-bhp.com/forum/india...ml#post3590773 (The Official Fuel Prices Thread)

~ $ 10/bbl (approximately Rs 5/L) is a minimum refining margin (covering opex+capex) in competitive open market. Indian retail fuel being govt controlled and with too many mechanisms distortion market dynamics + the marketing & retailing costs --> Rs 10-15/L seems to be about an all right figure.

Originally Posted by Silver Knight

I own a few petrol stations. There is a profit of about Rs 3.4 per liter on petrol and Rs 2.20 per liter on diesel. But petrol is tricky because it evaporates, so we lose around 30 paise per liter as evaporation loss. Dealer can also make extra money by using their own tanker trucks. The expenses (labour, electricity, bank charges, loan interest, investment etc) need to be covered from this margin.

I am curious to know:
1) the custody transfer of say a 15 kl takes place at the terminal/depot or at your retail outlet?
2) The terminals are supposed to have a vapor recovery system installed by the OMCs; so where would the evaporation losses take place?

[SmartCat]

Originally Posted by alpha1

Sensational headlines like this thread title focusses only on opex side, while conveniently forgetting the huge capex that needs to be done and whose cost needs to be recovered.

Sometimes even business media authors write amateurishly about crude oil/refineries/petrol/diesel. It is far worse when we read articles on mainstream media.

As you posted in the other thread, GRMs is the measure of margins of a refinery company, which in turn is measured in $ per barrel. It is quite odd to read this metric as "profit" of Rs. XX per litre of petrol/diesel.

[NomadSK]

Originally Posted by SmartCat

Is this problem is specific to petrol? Diesel does not have such evaporation losses?

All hydrocarbons have evaporation losses, depending upon the boiling point/Vapor pressure of the hydrocarbon. The higher the RVP, the more volatile the fuel, which means it evaporates more easily and can contribute to the losses/pollution.

Petrol is a typical chain length of C4-C12 with lower BP range of 35-200C while diesel C15-C18 has a BP range of 180-350C, kerosene is in between. Meaning, the products which are higher up in the distillation column have higher evap losses, and once liquid phase of hydrocarbon is over, then you have all gases (LPG, Butane, Propane etc) at the top end of the column. If you can smell it, there are enough vapors which are being emitted at ambient temperature indicating evaporation. Bottom line this is all game of vapor pressure and temperature, the lighter molecules evaporate first leaving the heavier molecules behind causing a reduction in the rate of evaporation with time, typical of a logarithmic trend.


There are in general 2 losses related to evaporation losses, standing (during storage) and working(while transporting).

The tendency for a substance to evaporate is dependent on the liquid’s volatility and temperature. Volatility is a material property that describes how readily a liquid enters the gaseous phase. The volatility of a liquid is quantified by its vapor pressure. The vapor pressure of a substance is the pressure of its gaseous phase when it is in equilibrium with its liquid phase. The higher the vapor pressure of a liquid the more volatile the liquid and thus has a higher tendency to evaporate. Different liquids have different vapor pressures at the same temperature, but all liquids become more volatile with increasing temperature. The higher the liquid’s temperature, the higher the average kinetic energy of the molecules in the liquid, increasing the vapor pressure and resulting in a greater rate of evaporation.

[anjan_c2007]

As I have always pointed out, 10 % ethanol blending is also mired with a clouded pricing controversy. Ethanol costs Rs 60 per liter with a 5 % GST. And blend that with the extant petrol cost per litre with 18 % GST. And you sell the concoction for Rs 97 to Rs 112 per liter to the retail consumers.

Now the war zone in the Middle East is escalating crude oil prices and the oil marketing companies ( OMC) could be reducing the cushion between purchase/ refining/ transport and retailing prices. But ethanol is now " liquid diamond" which is much promising for the OMC coffers with Gadkari's penchant for the ambitious 20 % target, in the offing.

[Silver Knight]

Originally Posted by binand

Don't the OMCs take a part of that back as the cost of licensing their brand?

Yes, that's referred to as the LFR (License Fee Recovery), which amounts to approximately 30 paise per liter. However, there's also a separate component known as the differential margin, which is roughly 30 paise per litre and is paid back to the dealers. As a result, these two effectively cancel each other out.

Originally Posted by alpha1

I am curious to know:
1) the custody transfer of say a 15 kl takes place at the terminal/depot or at your retail outlet?
2) The terminals are supposed to have a vapor recovery system installed by the OMCs; so where would the evaporation losses take place?

1. Custody Transfer? If by stock transfer, you mean:

a. For a standard dealer, it’s not considered stock transfer. The dealer purchases the product from the depot, and it is transported to their outlet either in their own tanker or via a contract tanker associated with the Oil Marketing Company (OMC). Any evaporation loss that occurs is not compensated by the OMC; it’s accounted for in the dealer's margin.

b. For a COCO (Company Owned Company Operated outlet), it is indeed a pure stock transfer. OMCs allow for a maximum monthly evaporation loss of 0.59% for petrol and 0.15% for diesel, based on nozzle sales.

2. Vapor Recovery System (VRS): It has largely failed in India. I have worked closely with companies that install VRS at petrol stations. These systems are mostly found in metropolitan areas and selected Tier 1 and 2 cities at outlets with daily petrol sales exceeding 5,000 liters.

a. Why I consider it a failure: The system is meant to capture vapor generated during refueling and return it to the underground tank at the outlet. However, it doesn’t work as intended. The rubber seals or enclosures at the nozzle tips don’t form a flush fit with the vehicle's fuel tank, so instead of sucking the vapor, the system fails. The motor used to capture vapor ends up pushing atmospheric air into the underground tank, which increases pressure and forces even more vapor out into the atmosphere!

For the VRS to work correctly, the nozzle needs a perfectly fitted rubber cap (a challenge in itself), and instead of pushing vapor directly into the underground tank, there should be a separate settling tank for the vapor.

After installing the VRS (which is mandated by law), I faced a daily loss of 200 liters of fuel for three consecutive days. The issue was that instead of capturing vapor near the nozzle, the system was pushing air into the underground tank, causing petrol-rich vapor to escape through the vent pipe .

After extensive research and collaboration with the VRS company, we reduced the suction pressure of the VRS motor to prevent it from pushing petrol vapor into the underground tank. Additionally, we installed a pressure release valve on the vent pipe to prevent it from opening at low pressures, which significantly reduced the amount of vapor escaping into the atmosphere.

[alpha1]

Originally Posted by Silver Knight

1. Custody Transfer? If by stock transfer, you mean:

a. For a standard dealer, it’s not considered stock transfer. The dealer purchases the product from the depot, and it is transported to their outlet either in their own tanker or via a contract tanker associated with the Oil Marketing Company (OMC). Any evaporation loss that occurs is not compensated by the OMC; it’s accounted for in the dealer's margin.

By custody transfer I meant the legal point of handover of goods from OMC to dealer. By your above post, I understand that as soon as the liquid is filled inside the TT, the goods are yours (dealers'). Do I have correct understanding?

In this scenario, any losses, pilferable or adulteration of goods once they leave the OMC terminal is dealer's responsibility - even though the transporter may be on the rolls of the OMC ...?

2. Vapor Recovery System (VRS): It has largely failed in India. I have worked closely with companies that install VRS at petrol stations. These systems are mostly found in metropolitan areas and selected Tier 1 and 2 cities at outlets with daily petrol sales exceeding 5,000 liters.

I actually meant the vapor recovery system at the terminal loading bays. That would decrease evaporation losses and the quantity getting into the TT would be as close as possible to the quantity metered by the Load rack controller.

I had a fair inkling about VRS being used in ROs also, but never knew that it was rolled out and made mandatory. Great insights below.

a. Why I consider it a failure: The system is meant to capture vapor generated during refueling and return it to the underground tank at the outlet. However, it doesn’t work as intended. The rubber seals or enclosures at the nozzle tips don’t form a flush fit with the vehicle's fuel tank, so instead of sucking the vapor, the system fails. The motor used to capture vapor ends up pushing atmospheric air into the underground tank, which increases pressure and forces even more vapor out into the atmosphere!

For the VRS to work correctly, the nozzle needs a perfectly fitted rubber cap (a challenge in itself), and instead of pushing vapor directly into the underground tank, there should be a separate settling tank for the vapor.

After installing the VRS (which is mandated by law), I faced a daily loss of 200 liters of fuel for three consecutive days. The issue was that instead of capturing vapor near the nozzle, the system was pushing air into the underground tank, causing petrol-rich vapor to escape through the vent pipe .

After extensive research and collaboration with the VRS company, we reduced the suction pressure of the VRS motor to prevent it from pushing petrol vapor into the underground tank. Additionally, we installed a pressure release valve on the vent pipe to prevent it from opening at low pressures, which significantly reduced the amount of vapor escaping into the atmosphere.

Thanks for these details.

One more question: are there significant evaporation losses during the unloading operation? (Fuel from TT going to the underground storage tank)

The reason I ask this is because once the fuel leaves the dispenser, it has already been metered, and from nozzle onwards whether it goes into atmosphere, or spills down or goes into the tank - the customer gets billed and he pays nevertheless to the dealer; so where does the question of evaporative losses affecting the dealers arise?

[sharc_biker]

Originally Posted by xway

The ethanol blending is horrendous to say the least due to -

- Decreases mileage (reduces by 20 to 25%)
- Bad for Engines as most are not capable of this blend even now
- The ethanol is magnet for insects and eats away the rubber and gaskets
- Your car life is reduced
- No benefit of mixing of cheap ethanol passed to customers so they pay 100% petrol and get 20% ethanol

I certainly hoped there could be something that can be done for this.

Another horrendous aspect of ethanol is that is being touted as a green alternative to fossil fuels.

But very few people realise the real environmental impact ethanol production has since ethanol is produced from food crops. The impact of intensive farming and extracting higher agricultural production of corn, rice or sugarcane has a big environmental impact.

Ethanol works well when there is excess production of crops as was the case in the US and Brazil where the concept originated.

India’s ethanol requirement today requires 15-25 million metric tons of grains extra to be produced. If you consider the overall impact of that on soil, water consumption, etc it is not at all environmentally friendly.

We are essentially burning food for fuel

[AseemYadav]

A better headline would be that central and state governments earn >Rs 50 per litre. The oil marketing companies actually need margins to sustain their operations. The government is taxing us so that babus and politicos can go about their freeloading cushy lives.

[gupta_chd]

Originally Posted by ashis89

For example, someone I know, operates a BP COCO bunk for the company. The land, machinery and investment are by BP. Operating expenses and fuel are paid by him. BP gives him a smaller commission per litre of fuel sold. His investment is a bank guarantee of 1 cr. and his profit is about 1L pm, give or take. Better than FD, yes. But lesser than what a good business can return and his capital is stuck (unlike FD).

A bit off topic. Why these pumps are know as COCO pumps (Company Owned, COMPANY OPERATED) when they are being operated by third entity. Have seen quite a few Pumps with this structure. Ideally company operated pump should have people on company rolls or atleast contractual employees. Just unable to comprehend.

[SmartCat]

Originally Posted by gupta_chd

Ideally company operated pump should have people on company rolls or atleast contractual employees. Just unable to comprehend.

I guess OMCs will need to create a fresh position called 'Pump Manager' and 'Pump Attendants'. It then creates more headaches if the pump manager goes on leave for a few days. Also, in the backend, they need to have HR systems to place to take care of salary hikes/promotion etc and also alternative job careers in case they decide to shutdown the pump

When operations are outsourced, all the above issues are outsourced to the operator. No EPF/PPF contributions & medical benefits to pump attendants also reduces costs, and makes the pump more profitable.

[ashis89]

Originally Posted by gupta_chd

A bit off topic. Why these pumps are know as COCO pumps (Company Owned, COMPANY OPERATED) when they are being operated by third entity. Have seen quite a few Pumps with this structure. Ideally company operated pump should have people on company rolls or atleast contractual employees. Just unable to comprehend.

SmartCat has explained it very well. For a company focused on production and distribution, retail sales could be an area where they don't want to focus much except for branding or coverage.

For such "managed" COCO, the daily operations is outsourced to a person who takes care of staff and any emergency. The operator is like a company representative on the ground without salary but is "invested" in the business and shares the profit. CCTV all around are there for remote monitoring and PSU employees visit frequently for inspections.