New Delhi: Mukesh Ambani promoted Reliance Industries Ltd (RIL) and London-based BP Plc may expand their relationship and jointly participate in downstream opportunities in India, including automobile fuel retail, two people familiar with the developments said.
This is in addition to the proposed sale of a 30% stake in RIL’s 23 oil and gas blocks, including the D6 one in the Krishna-Godavari basin for $7.2 billion (around Rs.32,544 crore today), which was announced on Monday.
At the same press conference, the two companies had also disclosed their intent to form an equal joint venture for “sourcing and marketing gas in India”.
“This is a precursor of things to come. The two companies are evaluating other downstream opportunities in the Indian petroleum sector, including fuel retail,” said a person aware of the development who did not want to be identified.
A senior RIL executive, who also requested anonymity, said: “This was a part of the targeted things. We are already in marketing. The retail costs can be shared.”
While the automobile fuel retail market is dominated by government-owned oil marketing companies (OMCs) such as Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd, private sector oil companies such as RIL, Essar Oil Ltd and Shell India also have a presence in domestic fuel sales, and have been lobbying for equal treatment with public sector OMCs.
This development comes at a time when the under-recoveries of government-owned OMCs are currently touching Rs.80,000 crore and may end the current fiscal year at around Rs.1 trillion.
While India partially deregulated fuel prices in June, allowing government-owned OMCs to fix the price of petrol instead of selling it at government-determined rates, OMCs are still losing Rs.1.85 on the sale of every litre of petrol and Rs.10.73 per litre of diesel.
While an external spokesperson for RIL declined to comment, Rajeev Kumar, vice-president of BP India, said in an email response: “This specific strategic partnership is purely upstream and involves us jointly now investing and growing the E&P (exploration and production) business in India. It is too early to say what else we may do. We now have a strategic partner in India, and we will jointly assess what other areas of synergy and cooperation would be of mutual benefit.”
Essar Oil and RIL had shut several retail outlets because they couldn’t match the prices at government OMCs’ pumps. RIL, India’s biggest company by market value, has reopened 695 of the 1,432 outlets it had earlier closed.
With 35,068 retail outlets, public sector units have almost a 95% share of the domestic fuel retail market by volume.
David Nicholas, director (group media) at BP, in an email response, said: “We now have a strategic partner in India and we will work to assess jointly whether there are other areas where further cooperation might be attractive to both partners. However, it is too early to say or speculate whether this will happen or what form or in what areas this potential cooperation could be.”
With international crude prices rising sharply, state-run oil companies are faced with a substantial revenue loss from having to sell diesel, kerosene and liquefied petroleum gas at below-cost price to keep inflationary pressures under check.
Currently, OMCs are incurring monthly under-recovery of Rs.365 crore on the sale of these three products.
“One can’t rule out such joint initiatives in the downstream on their part,” said the head of a government-owned company in the hydrocarbon space, who requested anonymity.
“The strategic alliance between BP and RIL essentially also provides a strong platform for greater cooperation, including downstream opportunities, in the times to come,” said Monish Chatrath, executive director at consultancy firm Mazars India. “While the current focus is clearly on the 23 blocks in question, the same may not define the boundaries within which this relationship can be leveraged upon on future collaborative agreements.”
The Indian government has been talking about “a viable and sustainable system of pricing petroleum products”. Crude oil price volatility has hurt India, which imports around 80% of its oil requirements.
The RIL stock rose 2.98%, or Rs.28.55, to close at Rs.985.05 on Tuesday on the Bombay Stock Exchange even as the exchange’s benchmark index, the Sensex lost 0.77% to close at 18,296.16 points.
For the last one year, RIL has gained 0.63% while the Sensex has risen 12.68%.
Aveek Datta in Mumbai contributed to this story.