Indian Oil may put off overseas sales plans

Indian Oil Corporation (IOC) is reviewing its plans to retail auto fuels across the world as in the south-east Asian countries the subsidised markets are a put-off, while the prospects of competing with oil majors in the US, Europe and Africa is a dampener.

The country's largest marketer of petroleum products is facing troubles in Sri Lanka, one of the two overseas markets where it sells fuel through its fully owned subsidiary, Lanka IOC. The other country is Mauritius.

In 2005-06, Lanka IOC posted a net loss of Rs 309 crore, due to non-payment of subsidy on fuel sales by the Lankan government. Though this was reversed when the government reimbursed Rs 215 crore to the company via bonds and a cheque for the under-realisation it had incurred in January this year, the company reported net loss of around Rs 25 crore in 2006-07 as well.

"Our experience in Sri Lanka has forced us to reconsider the plans of starting retail operations in south-east Asia as auto fuels are subsidised in these countries. We do not want to get caught in the subsidy web again," a senior IOC official, who did not want to be named, said.

The US and European markets are also out of IOC plans as the markets there are highly "matured", the official said. "The established fuel retailers are already in those markets. To make a success of our business there we will have to spend enormous amounts in building our brand," the official added.

African plans are also currently on hold for reasons similar to the US markets: "The big players are already there. Moreover, the market is very limited," the official said.

These investments could be justified if IOC was looking at a significant international retail presence. However, its priority continues to be the domestic market with only the surplus being exported.

Export-focused companies such as Reliance Industries are looking at entering the international retail market through acquisitions. Reliance is reported to be looking at acquiring an oil marketing fuel retail in the US. Reliance operates an export-oriented 33 million tonne refinery in Gujarat, with another 27 million tonne refinery scheduled to be commissioned by 2008-end.

The IOC official, however, added that the plans to set up retail outlets in south-east Asia was not shelved. The company will wait until the subsidy regime in Indonesia and Malaysia is lifted before starting outlets there.

IOC plans to enter the south-east Asian markets by selling lubricants, which it says will begin in a year. "That will also help us build some kind of a brand image," the official said.

In Mauritius, the company's wholly owned subsidiary Indian Oil Mauritius has about 18 per cent share in the auto fuels retail market.