India tells fuel firms: stop rationing sales

How does Reliance make money?

Reliance runs a huge export refinery at Jamnagar, a city in western India, and sells fuel through about 1,555 Jio-bp petrol pumps, a joint venture with BP, the British energy firm. When world oil prices rise and India freezes pump prices, Reliance loses money on domestic sales, so it limits how much it sells and instead exports more, where margins are higher. The government then orders it to keep selling at a loss.

Why do state fuel firms keep losing money instead of raising prices?

Because politics trumps economics. State-owned retailers control about 90% of fuel sales, and any price change happens only in consultation with the government, their largest shareholder. Raising prices would fuel inflation and anger voters, so the government keeps prices frozen and makes state firms absorb the loss, about 5.3 billion rupees (roughly $64 million) daily. Private firms must follow or lose customers.

What would it take for fuel prices to finally move?

Our read: a sustained drop in global crude prices, not government action. The freeze began in May with oil near $107 a barrel, a price not mentioned elsewhere in this article; losses have only widened since. If crude falls enough to erase the roughly 50-rupee diesel loss, the government could allow a cut without political damage. Until then, the losses and rationing pressure will continue.

Why are fuel prices locked?

India hasn't revised retail diesel and petrol prices since May, even as global crude prices climbed. State-run retailers, which control about 90% of fuel sales, set the pace, and private firms must match them or lose customers. At this frozen price, diesel sales lose about 50 rupees per litre, so private retailers rationed rather than sell at a loss.

Why ration fuel instead of raising prices?

Rationing lets private retailers limit how much fuel they sell at a loss. India froze pump prices, but global crude costs rose, so each diesel litre sold cost them about 50 rupees. Selling less reduces that loss, while raising prices would break the government's price freeze and likely draw penalties.

How long can state retailers keep absorbing losses?

State retailers are losing about 5.3 billion rupees daily, which converts to roughly $55 million, on fuel sales, with no end date in sight. They keep absorbing losses because the government froze retail prices since May to control inflation. The losses will continue growing as long as crude stays high and prices remain unchanged.

What happens if retailers ignore the order?

If retailers ignore the order, the government can tighten regulations, impose penalties, or make business difficult for them, since their licence to sell fuel carries an obligation to sell. But the order doesn't change the economics: crude is still expensive, retail prices are still frozen, and losses of about 50 rupees per litre on diesel remain.

Will private retailers actually stop rationing?

Not necessarily. The government can order Reliance and Nayara to stop rationing since their licences require them to sell, and it could impose penalties if they refuse. But the economics are unchanged: retail diesel and petrol prices have been frozen since May, so every litre they sell loses money. The directive doesn't fix that loss, so they may comply reluctantly or find other ways to limit exposure.

Is 50 rupees per litre a big loss?

Yes. State-run retailers reportedly lose about 50 rupees per litre on diesel because retail prices have been frozen since May while crude costs rose. At roughly 60 cents a litre, that is nearly double the 23-rupee loss reported as of September 9, a date not mentioned elsewhere in this article.

Why does Reliance export fuel while rationing at home?

Reliance's export refinery at Jamnagar is a separate business from its retail joint venture, which buys fuel at market price. Exporting diesel to Europe is lucrative, while selling at home at government-frozen prices means losses, so the two operations follow different profit logic.