Continuation of Late Manjunath's Fight Against Adulteration

The objective of this petition is to address the issue of adulteration at petrol pumps in India. This is an issue that has caught the limelight due to the tragic death of Manjnath Shanmugham, who was employed with Indian Oil Corporation Ltd. at Lakhimpur Kheri. He was murdered following his efforts to control adulteration after he sealed a petrol pump having caught the owners in the act.



This petition is about what to do to ensure nobody else is murdered for doing his or her duty in this industry. For this to be achieved, adulteration needs to be stopped. To illustrate the cause of adulteration, one needs to understand the profitabiliy of a petrol pump (highlighted below).



The commission earned by a petrol pump dealer upon sales of petrol/ diesel are as below:

Commission Price Gross Margin

Petrol: Rs.0.848 per litre ~Rs.50 ~1.7\%

Diesel: Rs.0.509 per litre ~Rs.32 ~1.6\%



Let's take an example of a petrol pump with minimum sales of 100,000 litres per month of petrol & diesel put together (this was considered a bare minimum in the oil industry).



Assuming there's 30,000 litres of petrol & 70,000 litres of diesel (this would be an overestimate towards petrol in the region where late Manjunath used to work), the picture looks something like below:



Working capital investment (assuming 7 days stock)

Stock of Petrol: 7,500 litres @ Rs.50 per litre Rs.3,75,000

Stock of Diesel: 17,500 litres @ Rs.32 per litre Rs.5,60,000

Assuming 50\% sales of diesel on credit to transporters - avg credit period of 1 month

Diesel sales on Credit: 35,000 litres @ 32/ litre Rs.11,20,000

Total working capital Rs.20,55,000



For the moment, I am not even considering fixed capital.



The gross profit of the petrol pump per month would be as below:

Sales of Petrol: 30,000 litres @ 0.848 per litre Rs.25,440

Sales of Diesel: 70,000 litres @ 0.500 per litre Rs.35,630

Gross Profit Rs.61,070



Annualised, this translates to Rs.7,32,840 of gross profit. Now let's look at expenses:



Wages: Such a petrol pump would have to employ at least 10 pump attendants as per oil company norms. Assuming they are paid Rs.2,000 per month

Wages: 10 attendants @ 2,000 per month for 12 months Rs.2,40,000

Interest on Working Capital @ 8\% per annum Rs.1,64,400

Expenses Rs.4,04,400



Even without considering any other expenses (e.g. electricity, telephone, repairs, interest on fixed capital, etc.) the net profit per annum turns out to be a paltry Rs.3,28,440.



Is this what somebody would have imagined when investing in a petrol pump? Don't we all intuitively associate the owners of petrol pumps with a mansion, a fancy car and pots & pots of money?? Would such a person invest in a petrol pump simply to earn Rs.3,28,440 per annum (this is excluding income tax)?????



I haven't even considered the under table expenses involved in running a petrol pump or even in obtaining one. I have not even considered the value of the land on which a petrol pump is set up, which can even run into crores depending on the location.



Now consider that the dealer mixes 20,000 litres of kerosene in place of diesel. Kerosene costs Rs.10 per litre. The gross profit would appear as below:



Sales of Petrol: 30,000 litres @ 0.848 per litre Rs.25,440

Sales of Diesel: 50,000 litres @ 0.509 per litre Rs.25,450

Aduleterated Diesel: 20,000 litres @ 22 per litre Rs.4,40,000

Gross Profit Rs.4,90,890



Annualised, this translates to Rs.58,90,600. The net profit would, thus, be Rs.54,86,280. Isn't this what a businessman would look for from a petrol pump???????



To put this in perspective with what I set out to do with this petition:



1. Why do we have adulteration in petrol pumps in India?

a. There is a huge arbitrage available by selling kerosene in place of diesel @ Rs.22 per litre.

b. There's virtually nothing to be earned by selling honestly.





2. What can be done about this to stop adulteration?



a. Take away the arbitrage by preventing subsidised kerosene from reaching the petrol pumps. This can be done only if there's no subsidised kerosene available, i.e. END SUBSIDIES OF KEROSENE. Our politicians would refuse, saying it's a poor man' fuel. At least, minimise the supply - make it available only to people below the poverty line - the poor people only. The amount of kerosene available would reduce drastically.



b. Increase the commission available on sales of petrol/ diesel to at least 10\%. The annual gross profit would thus be Rs.44,80,000 & net profit of Rs.40,83,600. It's less than before, but nobody can say that this is not enough for a businessman. At least the business becomes viable. You would see more honesty in the industry if even honesty results in good money.



My petition is to

1. Increase the dealer's commission to 10\% of sale price both for petrol & diesel.

2. To remove subsidies on kerosene or at least limit it to people below the poverty line.



This would go a great distance in achieving the objective that Manjunath lost his life to - ending adulteration.