State-run fuel retailers brace for competition from private firms

Mumbai: Thousands of private fuel stations coming up beside the roads and highways of India are going to pose stiff competition to the country’s state-owned fuel retailers, which have dominated the business for long, industry officials said.   

Reliance Industries (RIL), Shell India, Total Oil India Pvt. Ltd, BP India and Essar Oil plan to open 2,000-3,000 fuel retail outlets over the next two years, encouraged by the market pricing of fuel.

Facing the heat will be state-run oil marketing companies (OMCs) Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL).

“New companies including BP India and Total Oil India are expected to enter the market in the next year. In addition to this, Shell, RIL and Essar will be expanding their existing fuel retailing networks. So, competition will intensify for the existing players. OMCs have already lost some market share to RIL, Essar and Shell in the recent past,” said a senior marketing official from one of the OMCs on the condition of anonymity as he is not allowed to talk to reporters. 

In an emailed response, BP India said, “BP RIL teams are in the process of understanding the vast landscape of opportunities and exploring specific areas to build a business case for consideration. We are unable to share specific details at this point of time.”

RIL and BP are partners in exploration and production, and gas-sourcing businesses in India.

Last October, BP got an in-principle approval and licence to set up 3,500 fuel retail outlets in the country. In February 2011, London-based BP had bought a 30% stake in 21 oil and gas production-sharing contracts operated by RIL for $7.2 billion.

Total Oil India, Shell India, RIL and Rosneft did not respond to an email sent to them on 2 October. Rosneft has taken over the retail outlets of Essar Oil. 

With a 6% demand growth, India is set to surpass China as the fastest growing Asian market for petroleum products in 2018, according to a 3 October report by rating agency Moody’s. 

“India is a growth market that everyone wants a share of. So, we are seeing interest from international oil companies. However, they will take time to expand as setting up a retail outlet takes a long time. And the OMCs already have a robust network in place,” said a senior retail officer from one of the OMCs, who also spoke on condition of anonymity. 

Between them, the OMCs have over 56,000 fuel retail outlets and are looking at expanding on the highways as cities already have sufficient numbers. 

India’s government-owned oil companies historically sold petrol and fuel at subsidized rates, keeping prices lower than market rates. However, this kept private fuel retailers out of the market, since they couldn’t afford to sell below cost. India removed petrol subsidies in 2012 and diesel subsidies two years later. The levelling of playing field has attracted several private firm to the business.  

After the end of petrol subsidies in 2012, OMCs began preparing for a market share war with a series of steps from automation to etiquette training, loyalty cards and sprucing up retail outlets. Still, private fuel retailers have gained 7% of the market and are looking for more. 

“We had anticipated competition from private companies but did not assume that they would move at a rapid pace. Of both RIL and Essar Oil, Essar has been the one expanding at the most rapid pace and impacting market share of the OMCs,” said another official from one of the OMCs on the condition of anonymity. 

Between them, oil marketing companies control 93% of the fuel retail trade. During the last fiscal, BPCL lost 0.17% market share. HPCL on the other hand gained market share in petrol and diesel by 0.08%.

Diesel is the mainstay of all fuel retailing companies as fleet operators, truckers and urban customers and cabbies run largely on diesel. So, even a slightest drop in volumes could have a big impact on revenue and market share. 

“We were and are aware of the expansion that RIL and Essar Oil have undertaken. But we are not sitting pretty. We have introduced automation, better customer interface and a transparent mechanism in terms of billing. We don’t expect RIL and Essar to capture more than 8-10% market share,” said a BPCL official who spoke on condition of anonymity.

RIL alone is targeting doubling its market share in fuel retail in the next two-three years, as it expands the business.

RIL currently has a 5% share of India’s fuel retail market. 

“RIL is working on various plans to improve its market share in the fuel retailing segment. It is looking at all the markets it is not currently represented in, and these are areas other than urban markets,” said an official aware of RIL’s fuel retailing strategy.

RIL was providing Re1 discounts on its diesel sales till a few months back. This not only helped the firm boost sales, but also further its market share. 

RIL spent Rs5,000 crore to set up 1,470 retail outlets between 2004 and 2006, of which 1,300 are now operational.

The company plans to reopen the rest of the outlets by the end of this year. RIL holds licences for 5,000 fuel retail outlets. As of July, RIL had 448 company-owned, company-operated outlets, which it plans to increase beyond 500 this fiscal year. 

The company, which is primarily into the business of refining, not only exports from its twin refineries in Jamnagar but also supplies to fuel retailers domestically. After RIL sold its South African retail venture Gulf Africa Petroleum Corp. early this year, it would be surplus in fuel which it could use in India to support its retail business. 

Essar Oil, which sold its refining business to Russian oil major Rosneft this August, has been a major threat to the fuel retailing business of OMCs. And with Rosneft holding ownership of Essar’s fuel retail outlets, OMCs fear new marketing strategies from the company. 

“Rosneft is known to be an aggressive player in the fuel retailing segment,” said an oil analyst tracking the segment. 

To get a licence to retail auto fuel in India, a firm should have a minimum investment of Rs2,000 crore in exploration or production, refining, gas or product pipeline, or terminals.