Swipe bill looms on oil firms

State-run oil marketing companies face the prospect of having to shoulder a cost burden of Rs 2,600 crore a year arising from digital transactions at petrol pumps across the country.

By R. Suryamurthy
  • Published 10.01.17

New Delhi, Jan. 9: State-run oil marketing companies face the prospect of having to shoulder a cost burden of Rs 2,600 crore a year arising from digital transactions at petrol pumps across the country.

Petroleum minister Dharmendra Pradhan today reaffirmed that neither consumers nor dealers who operate the petrol pumps would have to fork out the fee that banks intend to levy on credit and debit card purchases of fuel.

Banks have proposed to levy the merchant discount rate (MDR) - a charge that the merchant must pay the banks for enabling swipe card transactions - on fuel purchases later this week.

"Banks and oil companies are discussing the intricacies of these cashless transactions and will eventually decide who will bear the cost," Pradhan told reporters after a meeting with finance minister Arun Jaitley.

The government, which has been trying to nudge consumers to embrace digital transactions, had waived the MDR fee on fuel purchases after the demonetisation announcement on November 8. But after the 50-day window for the deposit of the old Rs 500 and Rs 1,000 notes at bank branches ended on December 30, the banks announced plans to resurrect the fee.

"The issue will be resolved before January 13," said Pradhan, who met officials from various ministries in an effort to find a solution to a vexed problem after petroleum dealers threatened to stop accepting card payments at their petrol stations.

"Bargaining and negotiations are going on. An amicable solution will be worked out," Pradhan said. Petrol pump owners are commissioning agents, and not merchants, and should therefore not have to bear the levy, the minister added.

Banks had said they would start charging petrol pump owners an MDR of 1 per cent on all credit card transactions, on an average. The rate for debit card transactions ranged from 0.25 per cent on transactions below Rs 1,000 to 1 per cent on transactions valued at above Rs 2000.

Before the demonetisation drive, customers used to be charged a 2.5 per cent surcharge if they used cards other than premium or co-branded cards.

Post-demonetisation, customers have shown a strong preference to pay for fuel purchases using their credit and debit cards. The re-imposition of the charge would increase the cost of going digital at petrol pumps.

"The oil marketing companies will have to shoulder the burden which would be at least Rs 2,600 crore per annum with diesel accounting for Rs 1,700 crore. The use of cards for fuel purchase increased to about 40 per cent since demonetisation. The burden on oil companies could go up if the volume of card payments increases. However, the oil companies could pass on the burden to the consumer by factoring it into the fuel prices," said K. Ravichandran, senior vice-president at ratings agency Icra.

Fuel consumption, which rose 10.9 per cent in 2015-16 to 183.5 million tonnes, is projected to rise to 190.03 million tonnes in the current fiscal, according to demand estimates made by Petroleum Planning and Analysis Cell (PPAC) within the oil ministry.

Card payments used to account for about 20 per cent of fuel sales in the country before the November 8 announcement. After demonetisation, the share of card payments has jumped to almost 40 per cent. Once other digital modes of payment like e-wallets catch on, the proportion of card payments may go down.

Card payments involve two to three players - payment gateways, POS (point of sale) machine provider and banks/merchandise outlet. "All these have their own share in the MDR charges. After negotiations, it will be decided to what extent the MDR charges can be brought down ... we are discussing all that with the parties concerned," he said.

Each time a card is swiped, a certain percentage of the amount paid goes to the company that has installed the card machine, the network provider such as Visa and MasterCard, and the issuing bank, with the average charge being 1 per cent per transaction.

After November 8, the government announced a 0.75 per cent discount on card purchases of fuel in order to promote non-cash transactions.

Pradhan said the government would stand by its decision that customers using non-cash digital modes of payments ought not to pay any transaction charge. Moreover, the 0.75 per cent discount on fuel rate for using digital payments will continue.

He said the government had issued guidelines in February 2016 stating that the MDR charge would not be passed on to the consumers and that the stakeholders would take appropriate steps to absorb the fee.