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Its true that land rates have shot up, making the setup of a pump that much costly proposition, especially in prime areas.

There has been a few pumps which dispense only petrol in cities. But now a days these are extinct as diesel autos and cars are ubiquitous.

Many pumps made way for commercial complexes, in prime areas as returns are lucrative.

Even the OMCs now ask for locations on highways, or on outskirts of bigger towns as finding land within towns/ cities has become impossible.

Is it due to the fluctuating pricing and chances of loss when the crude prices are on a downward spiral? The loses overnight are quite brutal according to a friend who runs a station.

As far as the land prices are concerned, will be true for urban space but rural it shouldn't be a big show stopper. Especially the general trend is once you have a filling station, soon other business also start around that area and most often all this property is held by the station owner.

One other Pointer that I have heard hits really hard, is to drive volumes most of the pumps have to resort to getting transport operators to use their pumps. Most of these transport operators pay back in 45 days or so which leads to large credit volume that you have to live with.

Regards
Rachit

I don't think 1.25 Rs per litre is right , it's less than a rupee per liter actually. A friend owns one and he told me it's some amount of paisa per liter.

Yes he too told me that his petrol bunk is running on huge loss too ( reliance petrol btw ) , I asked why don't you just get rid of it and construct some building on your property. He told me these petrol companies write contract for 20 years and hence they are stuck with it for that long :Frustrati

Who would ever think about owning a petrol bunk if that's the case ?

I have a very basic question.
When we fuel at a pump and dont take the bill from the pump, does the pump owner have to pay the sales tax (or) what every tax that he has to pay. If a pump owner can gain by this way - it will make a huge profit margin for him. Especially considering the OMC pays him only 1.25 Rs/litre.

And - what happens in the case of pumps with electronic bills? How does it work then?

I think the problem is that a petrol pump is a labor intensive operation in India. If pumps in India can go automatic(self filling using credit card) it will help,
But unlike Europe, where Visa Master cannot charge 2.5% fees, using your credit card at a pump is an expensive proposition.

Where is the "huge" daily cash? 2 lakh per month doesn't translate into anything remotely close to huge. Also, all sales are marked with proper invoices so having cash equivalent for a hawala kind of transaction, doesn't make sense to me.

Well I simply meant that 2 lakh per month doesn't really sound lucrative to me, not to mention there'd be 25-30% (at least) of operating cost part of it.

Something doesn't seem to add up, the profits cannot be so low. I think its time for me to find out our fellow bhpian from Delhi who owns a pump himself.

EDIT: Found him!
@Born 2 Be Wild: Your inputs are welcome.

This is one huge sticking point which even we found out when someone known to us tried to apply for Gas Agency license.

How can these companies expect that you sign a 10 year lease prior to the allocation? I feel this clause has been deliberately kept to dissuade people from applying or rejecting the application at a later stage.

Cash transaction will be for the entire sale and not just profit right? so for 2 lakh profit, cash flow per month should be around 1 crore (as explained by Alpha1 below)

I don't think it will make a difference if you take the bill or not as anyways, he has to order tankers officially from the company once he is out of fuel, and that quantity will definitely be entered in their official records. Hence, the tax will be calculated based on the tankers he ordered in the financial year.

However, this is what I think happens, though I'm not too sure about it. Any experts, please advise.

Ah, wait.
2 lacs is the commission earned.
About Rs 1 per liter. On an item that's price is about 50 times higher.
So the amount of cash collected by the pump operator is 1 crore per month.
I assume that most of this is actual bank notes.

In hawala - you don't need to sink in the money. This 1 crore rupees per month can be used as a medium to earn hawala commission (in hawala both the sides are squared off).

Since the amount has not vanished anywhere there is no discrepancy.
I am finding it hard to explain with the limited words in my post.

Let me try: the munimji of shop can use the invoiced payments to revolve money and earn commission/interest on it. And the sethji may never detect this whole operation if at the end of the day expected cash is returned and tallied against the bills/receipts.

This may not be true. Any retailer pays VAT/Sales tax/etc based on the sold inventory. If they have to pay on inventory in stock - no one will do business in India.

Oh yes, got it now, thanks for that! :)

Hi

Petrol Pump works on MRP pricing mechanism. Petrol Pump owners are just the distributor and get fixed commission per unit. The VAT is directly paid by the company to the state on MRP.

Total sales is counted by meter on the pumps & the dip (measuring rod) in the tanks, on daily basis.
Calculation of sales is as follows:
(+)Opening stock- 100 KL
(+) Inward (stock replenishment) - 12 KL
(-)Closing stock- 88 KL

(=) Sales for the day - 24 KL

So bill or no bill or electronic bill do not matter. At the end of the day, if the dealer has issued bill for say petrol worth Rs 100,000/- but sold worth Rs. 200,000/- as per meter reading. The dealer makes a single bill for another Rs 100,000/- to match meter reading, which is governing.

The black money comes in, if dealer is dispensing a lower quantity or increasing volume by adulteration coupled with tempering with meter or the tank reading.

The MRP mechanism is not applicable on Lub oil and dealer pays the VAT on the bill amount & takes inward credit for VAT amount invoiced by the company.

1Cr sounds like a lot of cash flow for a month, but I think it is unlikely that the dealer will hold this much cash with him at any time. From Wanderer's post, I gather that the dealer only earns a commission per litre of fuel he sells - and so the stock is owned by the oil company at all times. In that case, the oil company will want him to remit the proceeds from sales (minus dealer commission) with the company every few days (once a week atleast). If on the other hand he buys the fuel from the oil company on credit to sell later, he will still have to pay up every few days for the fuel he has already bought. So the pile of cash he has at any time will be much less than 1Cr.

Oil companies do not give credit. Dealer has to make an RTGS for every tanker of fuel or truckload of LPG cylinders.