Petrol Dealers Demand Higher Commission; No Favourable Response From Oil Companies So Far: Here's A Summary Of The Dispute

State-run oil marketing companies (OMC) are unlikely to revise the dealer margins in the near future, despite petrol pump dealers seeking a revision of commission amid high fuel prices. The OMCs are unlikely to revise the commissions now as the matter is sub-judice.

Also, dealers are accused of not having passed on the benefit from the previous increase in commissions to employees as per the Marketing Discipline Guidelines (MDG) amended in 2017.

Dealer Margin

Petrol Pump is the most common point of contact of customers with Oil Industry and in industry parlance, they are referred to as Retail Outlets (ROs). OMCs pay commission to the fuel pump dealers for retail operation and that is known as 'dealers’ margin'.

It is decided by a formula which includes elements as Return on Net Fixed Assets, Return on Working Capital, Product Losses, Operating cost, Bank charges, Business Return and Salaries and wages.

The margin is normally revised at periodic intervals in order to account for increase/decrease in operating costs such as wages and electricity, cost of working capital, business return to the dealer, return on investment in fixed assets by the dealer and cost of product losses.

The Dealers’ margin for Petrol and Diesel was last revised in August 2017. State-run OMCs hiked commissions paid to fuel pump dealers by up to 43 per cent for petrol and by up to 59 per cent for diesel, effective 01 August 2017.

Until 2017, petrol pump dealers were paid a fixed amount per litre and were uniform for all operators irrespective of their size. Put simply, this created hardships for dealers selling less than the national average of 170 kilolitre of fuel per month, largely in low-potential sectors like rural and remote areas. To alleviate the same, the OMCs have introduced a graded formula for calculating the margin amount.

Under the graded system, dealers’ margin is decided by the slabs which are based on the volume of the fuel sold and the category of the dealer (A and B site retail outlets).

Marketing Discipline Guidelines (MDG)

OMCs have formulated and issued the MDGs for maintaining market discipline and uniformity in action for operating the network of Petrol and Diesel Retail Outlets under them.

These were issued for the first time in 1981-82 and have been reviewed and amended from time to time, in view of changing circumstances as well as to set high customer service benchmarks for the OMCs as also the Dealers’ network. The MDGs were reviewed and amended again in the year 2012 and MDG-2012 were issued and made effective from January 8, 2013.

Under the guidelines, heavy penalties are imposed on petrol pump dealers for malpractices such as short delivery of petroleum products, operating automated dispensing units on manual mode, and improper maintenance of toilets.

The MDG 2012 was amended in 2017 following detection of large-scale malpractices in some states at the time of supply and dispensation of petroleum products. The amended MDG is, however, under scrutiny for the minimum wage stipulation, as it directly affects the dealer’s margins.

Minimum wage criteria

Under Clause 1.5 of the amended MDG, Dealers are bound to make payment of minimum wages as notified by OMCs, from time to time or statutory minimum wages as notified by the respective State Governments/UTs, whichever are higher, to the manpower employed at ROs.

To ensure that dealers are adhering to minimum wage directives, the OMCs in September 2017 reiterated that payment of salaries with effect from August 2017 were required to be made through e-payment. A Wage Register and e-payment details were also to be kept ready by the retail outlets for verification by OMC officials.

Dealers have also been instructed to ensure that all employees at their petrol pumps are covered under Pradhan Mantri Suraksha Bima Yojana (PMSBY) and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY).

Legal challenge

The amendment, notified in the year 2017, amending the MDG-2012 was challenged in various high courts, following which a number of High Courts including the Allahabad High Court and the Karnataka High Court upheld the power, jurisdiction and authority of OMCs to issue the MDGs.

The aggrieved dealers had also approached the Delhi High Court and a single-judge bench had passed an order striking down MDG 2017. Subsequently, a division bench of the Delhi High Court in January 2022 overturned the decision, and ruled in favour of the OMCs by giving its nod to all but one provision of the guidelines. Petrol pump associations last month approached the Supreme Court after the Delhi high court ruled in favour of OMCs.

The division bench order means that petroleum dealers will continue to face stringent penal action for offences involving short delivery of products among others. The dealers have also been directed to adhere to minimum wage requirements.

Dealer Concern

The pump dealers are aghast at the OMCs for not revising the commission for the past five years even as operating costs and facilities at pumps have increased.

“Though there was an agreement between oil companies and dealer associations that the dealer margins will be revised every six months, it has not been revised since 2017. The prices of fuel have almost doubled since 2017, hence the working capital in business has doubled leading to additional loans and bank interests thereupon,” the Petrol Dealers Association said in a statement.

“Evaporation losses have increased proportionately. Also, the overhead expenses like bank charges, electricity bills, salaries etc. have increased manifold during the last five years. Our constant demand to revise dealer commission has been overlooked by the OMCs (Oil Marketing Companies). By doing so, OMCs are making their own network financially unviable,” the statement further noted.