Rosneft, BP Entry May Fuel Retail Competition

While PSUs may feel the heat, consumers are likely to benefit from quality service
India’s fuel retailing sector is poised for unprecedented competition with Russia’s Rosneft and Britain’s BP Plc set to operate petrol pumps with global best practices, which can shake up the statedominated sector and give consumers international quality service.

Armed with fat balance sheets and a welcoming government, these aggressive oil biggies can challenge the dominance of state firms, which have 95% share in the business. This will also pose a stiff challenge for Reliance Industries, which also has a presence in fuel retail.

Pump owners and state firms are already talking about how foreign firms can snatch their customers with sleek marketing, branding and international quality services.BP has just received a licence to set up 3,500 pumps, while Rosneft will inherit 2,700 retail outlets following a deal to acquire Essar Oil.

Foreign oil producers, struggling with low oil prices for two years, are targeting large markets such as India. Saudi Aramco, the global giant with $13 trillion worth of reserves, and France’s Total have also shown interest in marketing fuel in in India, the fastest growing major economy and third-largest oil consumer in the world.

Their strong resolve, rich global experience, brand equity and the big pile of cash will range against the incumbents’ local experience, a sturdy network of filling stations and supplies across the country.

“BP and Rosneft can put up a big challenge for the incumbents.If they are willing to spend, they can expect a fast rollout. With the government ready to welcome them with open arms, they shouldn’t face many hurdles in securing supplies or expanding the network,“ said Amresh Kapoor, former executive director at Indian Oil Corporation (IOC).

“Foreign players could introduce many global best practices that would help raise the service level and act as the key differentiator. With a heavy use of technology and innovation, they could win the market,“ said Gaurav Moda, consultant at KPMG.

Pump owners are worried. “Foreign players might just take away our customers. With fresh look, equipment, advanced technologies, higher service level and brand equity , they will certainly have an advantage over us,“ said Nitin Goyal, an office-bearer at All India Petroleum Dealers Association.

State firms are alert. “We are fully geared to compete. New players are welcome. It will increase competition and eventually benefit customers,“ said BSCanth, director marketing at IOC, the country’s largest fuel retailer. Canth said state firms learned their lesson a decade back when Reliance Industries came from behind to grab a big chunk of the market.“Our systems are ready. We have back-end logis tics in place and a huge network in all regions.“ Fore ign players would have to learn the local business nuances to compete with us, he said.

“Most of the challenges will happen on the highways where diesel is the most dominant fuel. He re, the key would be to catch the fle et owners,“ said Moda.

Diesel sales are three times that of petrol. In the current fiscal, die sel sales are up 3% while petrol has risen 10.5%. Diesel price de control in 2014 brought back priva te players such as Essar Oil and Reliance Industries to fuel retai ling they had exited almost a deca de ago after crude spike had reint roduced regulation.

Foreign players would find it hard to obtain land in big cities for pumps but the highways and smaller cities could become their playground.

“How the market share gets divi ded ultimately will depend largely on the rate at which our fuel con sumption grows. If it grows at a faster rate, the state firms will be better able to protect their sales,“ Kapoor said.

Reliance and Essar own about 4,000 of the 56,000 outlets across the country. IOC has a little more than 25,000 outlets while Hindustan Petroleum and Bharat Petroleum together operate about 27,500 outlets. Shell, the only foreign player so far, has less than 100 stations. Shell’s limited presence and an uninspiring second innings by Reliance has given some analysts to conclude that the new entrants may stay slow.

rosneft

Open Up Oil Marketing

We need to purposefully open-up oil marketing. It makes no sense to ring-fence the retail marketing of oil products solely for the oil companies. It is sub-optimal, monopolistic and goes against the consumer interest. It is not even as per international practice. Abroad, `independent’ oil retailers account for as much as half the retail offtake of petro-goods. We need similar opening-up here.It would boost realisations in the larger retail industry and improve service quality at the oil pumps. We definitely need much more competition in India’s large and growing oil economy.

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