BP Plc and Reliance Industries Ltd (RIL) are planning to jointly set up as many as 2,000 petrol pumps in India over the next three years, according to two people aware of the development.
The exact arrangement of the venture is being worked out and would be decided in a few months, a Reliance executive, one of the two people cited above, said on condition of anonymity. While Reliance already independently runs 1,343 petrol pumps, BP received a licence to set up 3,500 fuel retail outlets in India in October 2016.
India is one of the few major global markets where fuel demand is growing and has attracted attention from foreign fuel retailers seeking to gain a toehold in a country where fuel retailing is dominated by state-run companies.
BP is RIL’s partner in its exploration and production ventures in the country. In February 2011, London-based BP bought a 30% stake in 21 oil and gas production-sharing contracts operated by RIL for $7.2 billion. The two are also partners in India Gas Solutions Pvt. Ltd, an equal joint venture for sourcing and marketing of gas in the country.
“We had a memorandum of association signed with BP but there was no definitive agreement. However, we will continue to expand our retail footprint and the marketing. It is in line with what we had planned to do,” V. Srikanth, joint chief financial officer of RIL, said after the company reported its second-quarter earnings on 17 October.
On his visit to India last week, Bob Dudley, BP’s group chief executive, said “Our partnership with Reliance is great, we just got to get the right sort of terms here with retailing.” To get a licence to retail auto fuel in India, a company should invest a minimum of ₹2,000 crore in exploration or production, refining, gas or product pipeline, or terminals.
RIL has licences to open 5,000 petrol pumps in India and plans to double its market share in the fuel retail segment. It currently has a 6% share in India’s fuel retail market. RIL and BP are planning to set up their retail outlets on the national highways. “Looking at the fuel demand scenario in the country, RIL is optimistic about the retail business.
Presence on the highways will be attractive for RIL as it is an underserved segment in the country,” said the first person cited earlier. During the September quarter, RIL reported 10% and 19% year-on-year volume growth in diesel and petrol sales, respectively.
RIL, which had a 12% market share in fuel retailing in 2005, saw its market share slip to less than 0.5% in 2014, by when it had shut most of its petrol pumps after sales plunged as it could not match the subsidized price offered by state-run fuel retailers. RIL had spent ₹5,000 crore in setting up 1,470 retail outlets between 2004 and 2006.
State-owned Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL), managed to sell fuel below production cost due to government subsidies.
But after the government deregulated petrol prices and diesel prices in June 2010 and October 2014, respectively, RIL began reopening its retail outlets in phases, gradually raising its market share to about 5%. At present, Reliance, Essar Oil and Shell India together have a 10% share of the fuel retail market, according to analysts.
However, the government’s recent move to cut prices of petrol and diesel by ₹2.50 a litre each, part of it as an excise duty reduction of ₹1.50 per litre and the remaining ₹1 per litre to be absorbed by state-run fuel retailers, could prove to be a dampener for the private sector.
As Dudley added, “I think that price controls are a kind of thing that will not be good for the sector in the longer term.” India has 57,312 petrol pumps, and Indian Oil, BPCL and HPCL are set to expand their network after a gap of nearly four years, by adding nearly 50,000 fuel outlets over the next three years.