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Govt cracks USO whip, private players raise fuel prices to curb sales

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NEW DELHI: The government on Friday cracked down on private fuel retailers by bringing all petrol pumps under the USO (universal service obligation) to prevent holders of fuel retail licences from wilfully shutting or starving outlets of stocks to minimise losses on petrol and diesel.
But the private players have found a workaround in the pricing freedom and charging Rs 2-5 per litre more than the artificially low rates of state-run retailers to discourage sales.
The government’s move comes amid reports of petrol pumps of state-run retailers running dry in several states due to a sudden rush of panic buying as closure or curtailment by private players sparked rumours of a shortage.
Under USO, entities with licence to retail fuels have to supply petrol and diesel on demand to all customers without discrimination throughout the specified working hours. They will have to maintain minimum inventory levels specified by the Centre and ensure availability of fuel to the customers at reasonable prices.
For months now private players have been curtailing stocks at outlets and many of them were shut in recent times to avoid losses resulting from a freeze on pump prices by state-run retailers, which serve 90% of the market, whereas crude is hovering around $120 per barrel.
At current pump prices, which correspond to roughly $85 per barrel of crude, the under-recoveries are estimated to have risen to Rs 18-19 on a litre of petrol and Rs 20-21 on diesel. With such unsustainable levels of losses, the private players raised petrol price by Rs 2-3 a litre and diesel by Rs 3-5 to discourage sales.
The curtailments by private players shifted their retail and bulk consumers to state-run outlets and strained the latter’s supply logistics, leading to delayed stock replenishment — especially those far from supply points. The problem was notable in Rajasthan, Maharashtra and Karnataka where the private players have a substantial presence.
The state-run retailers have extended working hours and introduced night shifts at their depots and terminals to raise the number of tanker despatches. Additional fuel inventories are being allocated for the affected areas to cope with the additional demand.
June is typically a high-demand period due to increased farming activities. A strong post-Covid rebound in economic activities and summer holiday season drove fuel consumption up nearly 50% from a year ago in the first fortnight. The recent power shortage also contributed to the demand as more generators were used. The shift of consumers served by private petrol pumps created a run on stocks at outlets of public sector companies.

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