According to HPCL and IOC officials, the marketing margins of sales of petrol and diesel are expected to rise from 50 paise per litre to Rs 1.5 per litre in the coming years. Simultaneously, the margins in the lubricants business is expected to double from Rs 5-8 per litre to Rs 10-16 per litre. The production margins for most of the refineries could be negative in case the import duties come down to zero.All this has meant that the control of retail outlets is the key to the profits of refineries.

But simultaneously what is also happening is the shift of the consumers preference to buy lubricants from bazars to retail outlets. This has the potential to bring down the valuations of the retail outlet themselvesand the reduction of bargaining power of more than 50 per cent of the contract owners vis-a-vis new refineries that would be trying to woo them to shift their alliance in the decontrolled period.

According to IOC officials, this has been their first year in the bazar sales. They set up 400 Servo shops in 1998-99. The surprising factor has been that sales through bazar propped up their total lubricant sales, which increased from 3.44 lakh tonnes in 1997-98 to 3.6 lakh tonnes in 1998-99.

After showing a continuous decline in market share from 55 per cent to 38 per cent, their market share went up to 43 per cent in 1998-99. BPCL also followed a similar policy of bazar sales and their markets share has gone up from 6 per cent to 9 per cent. Their lubricant sales showed a double digit growth in 1998-99. Bulk of the volume increase was in the last quarter of the fiscal 1998-99. Ironically, market observers say that Castrol - the biggest player in the Indian bazar market lost its market share.

Basically, forall the oil companies, approximately 10 per cent of volume sales and 40 per cent of profits come from lubricant sales through retail outlets. With the shift in consumer preference, IOC has decided to go slow on its expansion of retail outlets. Last year, its retail outlets grew by 10 per cent to 7,000. But in fiscal 2000, this would be at a slower rate. The company has decided to set up 500 more bazars which is more than 100 per cent growth albeit at a lower base.