Easier petrol pump rules offer fuel for thought

5. If you doubt the quantity, ask for a measuring test. Petrol Pumps usually have a 5-litre jar supplied by the Weights and Measures Department. Use this to fill up the can yourself and if anything less than the amount fills up, you can report the pump to the police. (Representative image)

The Cabinet Committee on Economic Affairs, on October 23, scrapped a rule that required a company to commit at least Rs 2,000 crore investment in the petroleum sector, paving the way for new players, including super markets, to open outlets for sale of automobile fuel.

Based on the recommendations of an expert committee, which was set up to review the guidelines on oil marketing, the government has now set a minimum net worth criterion of Rs 250 crore only for entities that want to market fuel in the country. However, the authorised entities will have to fulfil certain conditions such as opening a minimum of 5 per cent of their retail outlets in remote areas within five years of the grant of authorisation.

A mechanism has been set up to monitor this obligation. Besides, these entities will be required to install facilities for marketing at least one new generation alternative fuel such as CNG, LNG and biofuel at their retail outlets within three years of operationalisation of outlets selling conventional fuel.

The changes had been made as the government felt that “the existing policy for granting authorisation to market transportation fuels had not undergone any changes for the last 17 years since 2002”. This revision in policy, the government feels, will bring it in line with the changing market dynamics and encourage investment from private players, including foreign players in this sector.

“The new policy will give a fillip to ‘Ease of Doing Business’… and boost direct and indirect employment in the sector. Setting up of more retail outlets will result in better competition and better services for consumers,” an official press release said.

While the government optimism could make non-oil small players salivate about the money-making opportunities and encourage consumers to dream about buying auto fuel along with his or her groceries in a super market, it will perhaps be prudent to run a reality check on the present fuel marketing scenario in the country and see how well these measures can deliver.

As of April this year, there are 64,624 retail fuel outlets in the country. While the public sector oil trio operate 57,944 outlets (Indian Oil-27,702, HPCL-15,440, BPCL-14,802), Nayara Energy (formerly Essar Oil) owns 5,128, Reliance Petro has 1,400 and Shell runs 145 outlets. A cursory glance at the data shows how the numbers are skewed in favour of the public sector. This is despite the fact that the government had opened up the oil marketing space way back in 2002.

The initial hesitancy on the part of new players to foray into oil marketing was the fact that prices of petrol and diesel were then regulated by the government. It was difficult for them to efficiently compete with public sector oil marketing companies, which were responsible for most of the fuel retailed in India, since such fuel sold by the marketing companies was subsidised by the government to keep inflation in check.

Eventually, in 2014, the government deregulated fuel prices, offering a level-playing field to all market participants in fuel retailing. But even then, the public sector dominance continued.

Interestingly, the government's endeavour to enhance competition in oil marketing comes at a time when the public sector stranglehold on fuel outlets looks likely to get stronger. Armed with an official mandate that was granted in November last year, the public sector oil marketing trio have decided to open 78,000 new petrol pumps across the country. Not to be left behind, Reliance Industries — India’s largest company by revenue — has decided to form a new joint venture with its British partner, BP Plc, to expand its existing fuel retailing business.

With so much of interest from big players in fuel marketing, can this become a problem of plenty once smaller players jump into the fray following the relaxation in rules? There is already some indication that fuel demand is slowing. With so many new fuel retail outlets proposed — The total count will go past 1,50,000 outlets if all these do materialise — there is a question mark over whether the current level of throughput can be sustained.

To put things in perspective, let us take the example of the US. The world’s largest economy, which is a mature fuel retail market, has around 150,000 fuel pumps and a throughput per outlet of over 300 kilolitre per month (KLPM). In comparison, India’s throughput from 64,624 fuel retail outlets is around 160 KLPM.

So, what is the economic merit in adding so many pumps? While there is potential for car penetration to go up in the country, substitutes for petrol, diesel such as CNG and LNG are gaining ground. Then, there is the conscious effort to push the use of electric vehicles. Perhaps keeping all these things in mind, the government, while lowering the entry bar for fuel retailing, has set the rider that newbies will have to make provision for alternative fuel.

With an over-arching public sector presence and entrenched big private players raring to expand, will new players find fuel retailing lucrative enough after fulfilling the riders? It will perhaps all depend on how deftly the government administers the new policy pill to ensure that an overkill of petrol pumps does not spoil the government’s desire to encourage competition in fuel retailing.

(Abhijit Kumar Dutta is a freelance writer. Views expressed are personal.)