India’s biggest refiner, Indian Oil Corp. Ltd (IOC), will increase spending on petrol pumps and distribution networks by 33% to a record next fiscal year to supply fuel in the world’s second fastest growing auto market.
IOC will spend Rs2,000 crore on new and existing retail outlets in the 12 months from 1 April, G.C. Daga, director (marketing), said in an interview in Mumbai.
General Motors Corp., Ford Motor Co. and Tata Motors Ltd this week announced plans to increase output and sell new models in India where rising incomes and economic growth are stoking demand for cars. IOC is expanding its network in anticipation that state-set retail fuel prices will be raised.
“We are trying to capture the best locations along the highways and get deeper into rural areas,” Daga said on Wednesday. “We are losing some money for every litre of fuel we sell, but that is not stopping us,” he added. “We see this as a time for consolidation.”
IOC is building outlets on highways and villages, taking advantage of a pricing system that partly compensates state-run refiners for selling petrol and diesel at a loss. Non-state rivals Reliance Industries Ltd and Essar Oil Ltd are either shutting outlets or slowing sales because they don’t get a similar reimbursement.
The company can build an outlet in rural areas for as little as Rs7 lakh, compared with a regular station that costs as much as Rs2 crore, Daga said.
It plans to build about 1,000 low-cost outlets in the year starting 1 April, compared with 700 this fiscal. Regular outlets may be expanded by 600 compared with 500, he added.
Sales of oil products will rise as much as 7% in the 12 months from 1 April, the second year in a row, Daga said.
GM, the world’s biggest auto maker, estimated on Wednesday that sales in India may gain 50% this year. Ford said it will begin selling a small car in India in two years, while Tata Motors on Thursday unveiled its cheapest car.
The government caps fuel prices to control inflation and hasn’t allowed an increase since June 2006 even as crude costs have surged to a record. It may raise fuel prices to match an increase in crude costs, M.S. Srinivasan, secretary, ministry of petroleum and natural gas, said on 8 January.
IOC is losing Rs170 crore a day for selling fuels below cost, without the partial reimbursement, P.K. Goyal, executive director (finance), had said on 3 January.