Shell India, the domestic arm of Royal Dutch Shell Plc, has offered for sale around 20 of its 80 operational retail outlets and around 20 sites acquired for setting up such outlets. It has approached oil marketing companies, both public and private, regarding this.
Shell India confirmed the move, but did not comment on the numbers.
“The primary reason for putting these retail outlets on offer is differential pricing and the selective subsidy policy that the government has in place with regard to fuel retailing in the country,” said Deepak Mukarji, Group communications head for Shell India.
“The properties on offer include a combination of vacant lands and petrol stations across various cities. We are, however, constantly reviewing our retail strategy and would continue to build a desired network of retail chains. While we are selling in some areas, we are also acquiring in other regions to scale up.”
Shell India in July 2004 had acquired a marketing licence from the government to set up a network of up to 2,000 fuel retail stations. Shell India Markets Pvt Ltd (SIMPL), a fully-owned subsidiary of Royal Dutch Shell Group, is implementing the licence in India.
Oil marketing companies told Business Standard they did not find Shell’s offer attractive as the valuations of the retail outlets and assets attached to these facilities were relatively high. “We did the due diligence and found the properties, some fuel retail outlets and some prospective sites between 1.5 and two acres too expensive for us,” said a senior official at one of the private sector oil companies, requesting anonymity, as he was not authorised to talk to the media.
According to him, as they are already present in some of the regions where Shell offers its retail outlets, they decided not to go ahead with the deal.
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Depending on location, setting up of a fuel retail outlet costs anywhere between Rs 8 crore and Rs 10 crore in a metro city and Rs 2-3 crore in a rural area.
Last year, Shell — present across Bangalore, Hyderabad and Chennai and parts of Gujarat and Maharashtra — shut some of its retail outlets, owing to mounting losses in fuel retailing due to rising crude oil prices.
Other private companies, Reliance Industries (RIL) and Essar Oil, also felt the heat when crude oil prices touched a record high of $147 in July 2008. While this made RIL suspend operations at its 1,432 retail outlets, Essar Oil continued operating some outlets and closed others.
The private sector players sell fuel at market-determined prices. Unlike their public counterparts, they are not entitled to get oil bonds from the government as means of compensation. With crude hovering around the $70 a barrel mark, RIL and Essar Oil have around 650 and 1,341 retail outlets operational, respectively.
These companies are waiting for the government’s decision on deregulation of fuel prices, which would allow them to regain their market share in fuel retailing and also help them make a gross margin of Rs 1,000 per kilolitre.