Little private threat to PSU fuel retailers

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New Delhi | September 20, 2015 12:19 AM

Despite deregulation, pvt sector slow to expand retail operations

Despite deregulation, pvt sector slow to expand retail operations (Reuters)Despite deregulation, pvt sector slow to expand retail operations (Reuters)

It’s been nearly five years since petrol was deregulated and a year since diesel prices have been freed, but the ramp-up of fuel retailing by private sector firms has been slower than expected.

Going by the current pace of expansion, the three public sector oil marketers — Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation — seem to be not only holding their predominance in the business, but could even inch up their market share.

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While chances of a throwback to the control regime now look much less real than a decade ago (when administered pricing quietly returned after a two-year retreat), what impedes the private players’ retail expansion drive is basically the big increase in infrastructure (mainly land) costs. The demands from existing and potential dealers for higher commissions have also become a hurdle.

Mukesh Ambani-promoted Reliance Industries, which follows a retailing model where it owns the infrastructure, is struggling to reopen even existing mothballed outlets. Of the 1,400 retail stations that the company owns, only about 450 are operational now, say analysts.

RIL, however, did not respond to an FE questionnaire seeking details of its fuel retailing plans.

The Ruia-promoted Essar Oil, however, has about 1,550 operational outlets across the country, and is rolling out another 1,600 in line with a plan, according to a company spokesperson, to have 5,000 operational outlets in the next 18-24 months. Multinational Shell is operating about 60 fuel stations.

All these pale in comparison to the robust network of the PSUs, which together operate nearly 55,000 fuel pumps. Global investment bank and institutional securities firm Jefferies feels that ramp-up in market share by the private sector “would be much slower this time”. It says in a recent report: “We note that RIL and Essar together own 5% of petrol pumps now, many of which are closed, against 9% in 2006.”

“We plan to re-commission the entire network of petroleum retail outlets by the end of FY2015-16,” Mukesh Ambani, RIL CMD, had said at the company AGM in June. Sources said many of RIL’s dealers don’t seem keen on re-opening pumps, while others are demanding higher commissions.

Going by the PSU retailers’ data, dealer commission in petrol has jumped to R2.27/litre now from R0.85/litre in 2006 and for diesel, the commission is currently at R1.42/litre against R0.51/litre in 2006. At present, setting up a new pump could cost an average of R1.50 crore against

R30 lakh nearly a decade ago.

Moreover, industry watchers say private players are still on ‘wait-and-watch’ mode when it comes to fuel reforms. The dismantling of administered pricing mechanism in 2002 was short-lived as the controls were brought back two years later. During the period when APM was really off, 23 price revisions were made by retailers of petrol and diesel, 15 increases and eight reductions. The question is, if the crude prices surge, the government would be in a position to retain the pricing freedom for the fuel marketers, say analysts. In fact, both RIL and Essar had ramped up their presence in petroleum products retailing in 2004-06 period. At its peak in April 2006, RIL reported a market share of 14.3% in diesel and 7.3% in petrol, but the share has since plunged.

On their part, PSU firms have been on a modernisation drive across their outlets. A professional training initiative for customer attendants, called project CHETNA is being launched too. Various mobile applications were also launched for enhancing dealers’ productivity. “These initiatives are in sync with our profit-oriented approach,” said B Ashok, chairman of IOC.

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