India’s public sector oil marketing companies — IOC, BPCL and HPCL — have decided to set up close to 80,000 fuel retail outlets in the next three years as part of the biggest-ever expansion of their fuel retail network. Industry officials, however, feel they may be able to set up just around 15,000 since the strikeout rate has been quite high and a cumbersome land acquisition and approval process makes things harder.
“Given the past success rate, we expect to give Letters of Intent (LoI) for about 14,000-15,000 locations by the end of the entire process. The focus is also on Tier-II and Tier-III cities as well as rural areas, since metro cities are mostly saturated,” said an official at a government-owned refiner.
The low success rate could be due to the cumbersome land approval process, he noted, adding that more often than not, land is not approved, and even if it is, many cases end up having to face litigation. The state-run firms are learnt to have already issued letters of intent for 9,000 new petrol pumps and around 110 new pumps have already been commissioned. Of the 64,624 petrol pumps currently operational in the country, 90 per cent of the petrol pumps are operated by three government-owned OMCs, led by Indian Oil Corporation (IOC) with a 42.9 per cent share, Hindustan Petroleum (HPCL) with 23.9 per cent share, and Bharat Petroleum (BPCL) with a 22.9 per cent share.
While the state-owned firms have, since financial year 2008-09, added an average of 2,500 petrol pumps every year, the private players who have been allowed to enter the business of marketing transportation fuels since 2002 have only added a total of 6,673 as at the end of April 2019, adding 417 petrol pumps every year since 2002.
In most cases, analysts believe that private sector peers are unable to sustain their businesses since they fail to match the subsidised price offered by state-run fuel retailers. For instance, Reliance Industries Ltd, which had a 12 per cent market share in fuel retailing in 2005, saw its market share slip to less than 0.5 per cent by 2014. The company had shut most of its petrol pumps by that point, since it could not match the subsidised price offered by state-run OMCs.
However, private players have gradually increased their share of retail outlets to 10 per cent by March 2019, from six per cent in March 2013, primarily driven by one entity, Nayara Energy — the erstwhile Essar Oil. Among private players, Naraya tops the list with 5,224 fuelling stations, followed by RIL with 1,400 and Royal Dutch Shell with just 151.
On the other hand, state-run Indian Oil Corporation has 27,800 pumps, followed by HPCL with 15,471 and BPCL with 14,903. Experts believe that the recent proposal to amend fuel marketing guidelines, if accepted, would enhance competition and allow tie-ups between traditional fuel retail companies.