Rosneft's $13 billion acquisition of Essar Oil gives it the control of 2,700 operational retail fuel pumps across India.
Russia’s largest oil exploration and production company Rosneft’s $13 billion buyout of the single-largest controlling stake in India’s refining and marketing major Essar Oil is sure to give it a strong foothold and a head start in the world’s fastest growing major economy’s vast and rapidly expanding retail fuel market, which is cheering the recent introduction of daily revision of petrol and diesel prices.
State-run Rosneft said on Thursday that it has completed its delayed takeover of a 49% equity stake in the private Essar Oil for $13 billion, or about Rs 84,000 crore, closing a deal agreed in October last year. Commodity trader Trafigura will pick up another 25% stake as part of the deal. The acquisition will augment Rosneft’s oil refining output by 20% this year, it said.
However, it’s not only the increased refining output that is on the mind of Rosneft. The acquisition gives Rosneft the control of Essar Oil 2,700 operational retail fuel pumps. Earlier this month, India’s oil minister Dharmendra Pradhan had said that Rosneft is planning to tap the country’s retail fuel market in a big way.
Private oil companies in India are keen on a vast expansion of their fuel retailing businesses given the huge growth potential in the industry on the back of the rising vehicle population in the country. Car penetration in India is at a mere 18 units per 1,000 people, compared with as much as above 500 units in most developed nations. There are close to 30 lakh cars sold in India every year.
Private fuel retailers such as Essar Oil and Reliance Industries are expected to add 6,000-8,000 fuel retail outlets by the financial year 2020-21, according to a CRISIL Research report released earlier last month. With this, private petrol and diesel retail companies are expected to ramp up their market share to 12-15% by then from 4-5% in FY16, it said. The three state-run oil marketing companies Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp are expected to add 9,000 fuel pumps during that period to their existing over 53,000 outlets.
… Wholesale gains
Essar Oil has about 2,700 operational fuel retail outlets across India. Mukesh Ambani’s Reliance Industries has over 1,200 fuel pumps across the country, most of which it reopened rapidly after the government began gradual deregulation of diesel prices in 2014. The company has a license to open up to 5,000 fuel pumps. Meanwhile, British oil major BP Plc has an in-principle approval to open 3,500 retail fuel stations in India. Another smaller private competitor Shell had 83 fuel pumps in operation at the end of December last year.
However, this is not the first time the private companies are betting big on fuel retailing. Private retailers including Essar Oil and Reliance Industries, who had gained about 6% market share of fuel retailing industry by 2004 with 1,840 outlets, had started closing down the fuel pumps after the government’s intervention to control rapidly rising fuel prices in 2005. Their share fell to a mere 1% by 2010. However, buoyed by the deregulation of the fuel prices in 2010, the private retailers again began ramping up their retail presence.
Indian government compensates the state-run oil marketers Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp for selling LPG and Kerosene below market prices. However, since the deregulation in 2010, pricing of petrol and diesel is left to the companies themselves.
(Originally published on Thursday, June 22 on www.financialexpress.com)