What next for Reliance Industries after Gapco sale?
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Ten years after Reliance Industries Ltd (RIL) entered fuel retailing in South Africa, the wheel has turned full circle.
India’s largest private sector company bought a 76% stake in fuel retailer Gulf Africa Petroleum Corp. (Gapco) in August 2007 and hoped to expand its footprint further in the continent.
At a time when RIL was struggling with its fuel retailing in India, the move helped RIL deploy its expertise in fuel retailing overseas and find a market for its products outside India.
That affair lasted a decade, almost.
Last June, RIL announced its intention to sell Gapco to France’s Total SA. On 29 March, the Indian company said it has obtained all approvals to complete the sale of its Gapco stake.
“RIL was happy with Gapco’s performance. Though it was not as huge as its India operations, for 10 years, Gapco did provide RIL with a reason to keep operating in the fuel retail segment. RIL had plans to expand in the neighbouring markets in Africa too,” said a person familiar with the decision to sell Gapco, on condition of anonymity.
With subsidiaries in Tanzania, Kenya and Uganda engaged in petroleum products import, trading and marketing among others, Gapco’s revenue for 2015-16 stood at Rs11,723 crore, according to RIL’s annual report for the year. Currently, Gapco operates 104 fuel retail outlets in the East African region — 65 in Tanzania; 30 in Uganda and nine in Kenya.
So, why has RIL dropped a subsidiary that seemed to be doing well?
The first person cited above and another close to the company said, after India allowed market pricing of fuel, RIL’s fuel retailing business has recovered and the company wants to put all its energy into expanding in India, the world’s third-largest crude oil consumer.
According to the International Energy Agency (IEA), India beat Japan as the world’s third-largest crude oil consumer in 2016. India will also become the world’s third-largest-refiner in 2022, surpassing Russia.
“RIL has always been bullish on the India market. And its management now wants to focus on India. Gapco happened when India operations were down. Then, RIL had decided to put its management bandwidth to use in Gapco. With all international petroleum retailers eyeing the India market, it makes sense to divest in Africa and focus back home,” said the second person familiar with RIL’s move.
RIL did not reply to an email sent on Friday.
RIL’s interest in the Indian fuel retailing segment was rekindled in October 2014 when the government freed diesel prices. Petrol was deregulated in June 2010.
Like state-owned oil marketing companies, for RIL too, diesel has been the key product, bringing in the maximum volume. Diesel deregulation meant a revival of its fuel outlets. RIL’s Diesel sales accounted for 14.3% of the total diesel sales in the country, while its petrol sales accounted for 7.2% of total petrol sales in the country in 2005-06, RIL’s fuel retailing heydays.
Since 2008, when crude oil prices rose to $150 a barrel, diesel retail was the monopoly of Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL), which managed to sell fuel below cost with government support, something not available for RIL. In May 2008, RIL closed its fuel pumps.
The company, which at one point explored tying up with oil marketing companies to stay afloat, abandoned the plans after fuel price deregulation.
RIL, which had a 12% market share in fuel retailing in 2005, slipped to less than 0.5% in 2014. Since then, it has clawed back to around 3-4%. RIL had spent Rs5,000 crore in setting up 1,470 retail outlets, of which around 1,151 were operational till the third quarter of 2016-17. The company planned to reopen all its fuel retail outlets by the fourth quarter of 2016-17.
Last fiscal, RIL also began reporting its fuel retailing figures. Its retail outlets, which are company-owned and company-operated, are now included in its organized retail business.