The Cabinet Committee on Economic Affairs in October relaxed the norms for firms to open fuel retail outlets, effectively paving the way for more private companies, both foreign and domestic, to enter this business domain.
In the wake of a slew of government measures to attract more private players in the oil and gas retail segment, state-run Indian Oil Corp (IOC) is preparing an action plan to confront the “challenging times ahead”. The possible action points, according to internal company documents, include reviewing its refinery expansion plans, monetising existing infrastructure, manpower restructuring and tie-ups with supermarket chains for setting up fuelling facilities at their stores.
The Cabinet Committee on Economic Affairs in October relaxed the norms for firms to open fuel retail outlets, effectively paving the way for more private companies, both foreign and domestic, to enter this business domain. According to an internal note circulated among IOC top brass, which FE has accessed, it was pointed that “plans of big refinery expansion needs review” as it fears that the expected market disruption can potentially “result in idling of infrastructure created/being created for meeting demand projections under the current business scenario.”
When contacted, an IOC spokesperson said “it will not be possible to publicly share the specifics of the Corporation’s strategies for the future”. However, the company is “continuously expanding its refining and marketing infrastructure and reseller network as well as product offering and customer service to be ahead of competition”.
Welcoming enhanced competition in the market, he said that IOC is “looking at all emerging opportunities that we can encash to maintain our numero uno position in the market place”.
Among the potential challenges coming from new players in fuel retail, IOC is apprehensive “poaching of strong IOC retailers may happen especially if any of the foreign oil majors come in”. In early August, Reliance Industries and BP announced they would form a new joint venture in the fuel-retailing business across India. Also, Aramco, in its recent announcement about a forthcoming IPO, said it is “focussing its downstream investments in high growth economies, including China, India and Southeast Asia”.
As FE reported earlier this week, IOC is evaluating the option of throwing its hat in the ring and taking over the entire government stake in fellow oil-refiner-marketer Bharat Petroleum to maintain its lead position in fuel retail.
At FY19 end, there were 64,624 retail outlets in the country with IOC, Hindustan Petroleum Corporation (HPCL) and BPCL owning 42.9%, 23.9% and 22.9% of them, respectively. Nayara and Reliance owned 7.9% and 2.2% of the fuel retail outlets, respectively.
To battle competition, IOC, at a meeting of its marketing division on October 25, discussed putting more impetus on ‘project dhruva’, which aims to achieve operational efficiency through new technologies. The possible action points also include the integration of its mobile dispensing units with payment solutions. While manpower restructuring to reduce costs are also on the cards, it may also explore tie-ups with supermarket chains for setting up fuelling facilities at their stores.
CRISIL research recently noted that since Indian fuel demand is rising 5-6% CAGR over the past five years, global players are eyeing this market. Existing and upcoming private players are expected to add 6,000-8,000 outlets by FY21, which will enable them to garner a market share of 12-15% in terms of outlets, the research firm noted.