ONGC scraps retail plan, others go slow

Low-to-negative margins on sale of petroleum products have forced some companies to scrap their retail expansion plan, while others have chosen to go slow.

The country's largest upstream company - Oil and Natural Gas Corporation (ONGC) - which was planning to add 600 outlets to its existing single outlet, has dropped its retail plans altogether "because of the current pricing situation," ONGC chairman and managing director R S Sharma told Business Standard.

The official line in the petroleum ministry, however, is that the government wants ONGC to focus on its "core business" of hydrocarbon exploration.

Oil marketing is dominated by government-owned companies. The largest marketer - Indian Oil Corporation - is losing about Rs 50 crore a day owing to negative margins. Its smaller rivals - Bharat Petroleum and Hindustan Petroleum - are also incurring heavy losses. "With these losses, where is the case for investing in retail," asked a senior official of an oil marketing company. 
 

CRUDE AFFAIR Market share in petrol sales (in %)
	Apr-Nov 2005	Apr-Nov 2006
IOC	34.08	33.84
BPCL	29.13	28.87
HPCL	24.39	23.93
IBP	8.61	8.29
NRL	0.02	0.14
RIL	3.12	4.31
Essar	0.50	0.20
Shell	0.14	0.43

That explains the go-slow at companies such as Bharat Petroleum. It commissioned 902 retail outlets last year (2005-06), while in the April-November (2006) period, it has commissioned only 207 outlets. 
 

Retail outlets as of Oct 1, 2006
IOC	11,859
BPCL	7,460
HPCL	7,637
IBP	3,530
AOD	368
NRL	60
ONGC	1
RIL	1,287
Essar	514
Shell	17

"We are being selective and studying market conditions before opening new petrol pumps," said a company spokesperson.

Market shares in petrol retailing in April-November 2006 reveal that the traditional "big" retailers - IOC, Bharat Petroleum and Hindustan Petroleum - have all lost ground. IOC's share in petrol sales has dipped to 33.84 per cent from 34.08 per cent over the same period a year ago.

Bharat Petroleum's market share has dipped to 28.87 per cent from 29.13 per cent and Hindustan Petroleum's has dropped to 23.93 per cent from 24.39 per cent.

After the dismantling of the administered price mechanism (APM) for petroleum products in 2002, the government had opened up the market for retailing of petroleum products for companies which had invested Rs 2,000 crore in the sector.

Private sector slowdown...and not
Private sector player Reliance Industries has a nod to open 5,849 outlets, while Essar Oil and Shell was given the go-ahead for 1,700 and 2,000 outlets respectively.

However, the number of retail outlets by the new players have not been significant. Data till the end of September 2006 shows that Reliance currently owns 1,287 outlets, while Essar and Shell have opened 514 and 17 outlets respectively.

The company decided to go slow when it was forced to sell products at prices higher than that offered by the state-owned companies supported by subsidy.

Reliance officials said the company was waiting for the government to create a level playing field for public and private sectors. "We are hopeful the government will treat the private sector at par with the public sector. This will lead to more private sector retail outlets in the future," a Reliance official said.

The only voice bullish on retailing of transportation fuels is Shell. "We are on target to opening the 2,000 outlets we have a been given permission for," said Deepak Mukarji, spokesperson, Shell Companies in India.

"Our retail prices are based on market parity prices and we are doing well," he added. Shell's market share in petrol sales in April-November 2006 has increased to 0.43 per cent from 0.14 per cent a year ago.