Essar Oil, the first domestic private oil major to set up retail outlets after 102 years, has decided to lure customers by selling petrol and diesel at a discount to prices charged by state-run oil companies.

"We are offering petrol at 30 paise cheaper and diesel at 40 paise cheaper than that offered by public sector companies at our retail outlet in Jamnagar," an Essar executive said. Essar unveiled its second retail outlet in Gujarat early this week.

In fact, at its first retail outlet, a soft launch at Devrukh in Ratnagiri district of Maharashtra, Essar priced petrol 25 paise cheaper per litre and diesel 30 paise cheaper per litre.

The competitive pricing has helped Essar Oil record volumes of 200 kilolitre at this outlet.

Reacting to Essar Oil's offer, a senior official with PSU oil company said, "We can kill price competition, if any. PSUs have almost 18,000 retail outlets across the country and it will take private companies a while to compete with public sector companies".

However, prices offered by PSUs are still bound by the government diktat even though it decontrolled the petroleum sector in April 2002.

The oil companies sell petrol and disel based on an import-parity basis and their retail prices move in tandem with international prices.

Analysts claim that "PSUs will continue to dominate with their strategic reach across the country and can match any discounts offered by private oil companies without making a dent in bottomlines".

Meanwhile, Essar Oil has geared up for extensive retail distribution network. In Gujarat alone, it has planned 300 retail outlets by 2005 and has already appointed 150 dealers.

"The distribution network will enable dealers to run retail outlets professionally and profitably despite offering competitive price to the consumers", an Essar executive said.