Reliance offers to buy land from fuel retailers

The Mukesh Ambani-led Reliance Industries (RIL) has offered to buy the land of RIL fuel retailers who wish to exit its dealership. Some of the retailers have been looking to exit the dealership as they are making losses in the venture.

Over 75 dealers in Gujarat have already written to the company requesting an exit, while dealers in Andhra Pradesh, Orissa and Kerala say they, too, are unhappy and wish to quit the company's fuel dealership.

RIL, which has a market share of less than 0.5 per cent in fuel retailing at present, has a total of 1,450 fuel retail outlets. So far, the company has opened 667 outlets in the western and southern regions.

"Wherever possible, we are looking at the option of buying out the retail outlets. This, however, will be taken up on a case to case basis. At the end of it all, there are only a few players who are seriously looking at exiting the dealership. Many wish to sell out as real estate prices have appreciated," said an RIL official.

Dealers unhappy
Dealers in Gujarat, however, allege RIL has offered to buy their land at throw-away prices.

"While we have already been making losses, the company has offered to buy back our sites worth Rs 4 crore (Rs 40 million) for Rs 2 crore (Rs 20 million).

The dealers have invested anywhere between Rs 2 crore and Rs 4 crore in the outlets and the cost of land, depending on the location, has been Rs 1.5 crore (Rs 15 million) and Rs 3 crore (Rs 30 million).

An additional Rs 30 lakh to Rs 1 crore (Rs 10 million) was required for maintaining services. RIL wants to buy it all cheap," said Sunil Golwala, president, Gujarat Reliance Petrol Pump Dealers' Association.

RIL says it has also been compensating some dealers in Gujarat – where sales volumes are not very high - to the tune of Rs 25,000 per month.

"We have to look at profitability also. RIL spent Rs 5,000 crore (Rs 50 million) in setting up these outlets and our mainstay is diesel sales. Once the government de-regulates diesel prices, we may enter the segment in full-swing again," the official added.

RIL says it has been incurring losses on the retail outlets. However, it has provided a 12 per cent return to its dealers on the investments they have made. This July, around 75 dealers gave a clean exit letter to RIL.

Of the total 225 operational retail outlets that RIL has in Gujarat, 150 are dealer-owned, dealer-operated (Dodo) and company-owned, dealer-operated (Codo). The other 75 outlets are company-owned, company-operated (Coco).

In a Codo site, the company takes care of the services cost. Every dealer has to give a security deposit of between Rs 13 lakh and Rs 33 lakh, depending on the site.