Discounts at petrol pumps costing OMCs Rs1,500 crore every quarter

State-run fuel retailers—Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL)—are losing nearly Rs1,500 crore a quarter in providing discounts to customers using digital modes to buy fuel, two people aware of the matter said.

The digital discounts scheme that was brought in post demonetisation, was to be implemented till 31 March, but was extended indefinitely.

“The OMCs (oil marketing companies) put together are foregoing nearly Rs1,500 crore every quarter in providing digital discounts. We, however, are not terming it a loss. While these discounts are helping increase digital transactions, they are also bringing in footfalls,” said the first of the two people cited above, a senior official from the marketing division of a fuel retailer. He spoke on condition of anonymity as he is not allowed to talk to reporters.

Emails sent to IOCL, BPCL and HPCL on Friday were not answered.

also read: Automated system for daily revision of fuel prices rings in, petrol pump owners miffed

After the withdrawal of high-value currency on 8 November last year led to a cash shortage, the government on 8 December announced a discount of 0.75% for purchase of auto fuel using credit and debit cards and e-wallets at fuel stations run by the OMCs.

The discount came into effect on 13 December 2016. The discount is credited to a customer’s account as a cashback within three working days.

In addition, the OMCs also bear charges on merchant discount rate (MDR), a fee charged on card usage at swipe machines. The fee is 1% on credit card transactions and 0.25-1% on debit card transactions.

MDR is levied at the time of purchase, and paid to the bank. The government waived MDR at fuel stations till 31 December to encourage cashless transactions.

Since December, digital volumes or the volumes on digital mode of payment for fuel, has gone up from 10% to 25% currently, said a BPCL official on condition of anonymity.

“We did not anticipate the discount period would be extended this long. So far, there has been no directive from the government on ceasing the discounts; so, we have to continue with it,” said the second official mentioned earlier.

Satish Mishra and Deepak Kolhe of HDFC Securities in a 3 June note on HPCL said, “We sense a possibility of a year-on-year decline in profits in FY18E, led by hit of Rs500 crore per annum owing to a rise in digital payments for auto fuels and doubt on inventory impact.”