New fuel retail rule: Easier entry norms may dent monopoly of PSUs

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Published: October 24, 2019 2:45:59 AM

According to industry sources, Total and Saudi Aramco are also exploring opportunities to enter the fuel retail business in the country.

The move is expected to attract investment in the sector after lower-than-expected interest was shown by private oil companies to invest in the segment even after the deregulation of auto fuel prices.

The Cabinet Committee on Economic Affairs on Wednesday 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.

The move is expected to attract investment in the sector after lower-than-expected interest was shown by private oil companies to invest in the segment even after the deregulation of auto fuel prices.

Lowering the current requirement of Rs 2,000 crore, the government has now allowed entities with a minimum net worth of Rs 250 crore to set up fuel retail outlets. Also, the companies need not necessarily have prior investments in the oil and gas sector to foray into this segment.

Currently, about 90% of the fuel retail outlets in the country are owned by state-run firms.  According to Deepak Mahurkar, partner, PwC, “the entry barrier has been lowered significantly to break the monopoly of oil companies in fuel retail business”.

The policy for granting authorisation for retail fuel supply has been revised after 17 years. The change in the 2002 transportation fuel marketing policy allowed the entry of nine companies in this sector, including Reliance Petroleum (now Reliance Petro Marketing), Essar Oil (now Nayara Energy), Shell India and BP.

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. In early August, Reliance Industries and BP announced that they would form a new joint venture in the fuel retailing business across India.

According to industry sources, Total and Saudi Aramco are also exploring opportunities to enter the fuel retail business in the country.
Apart from the huge upfront cost requirements, one of the main barriers that discouraged the entry of private players in this sector is that the large infrastructure including pipeline systems, terminals and airport hydrant systems are controlled by the public sector oil companies.

At FY-19 end, there were 64,624 retail outlets in the country with state-run behemoths like Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (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.

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