Here’s how BPCL, HPCL disinvestment will usher tough times for Indian Oil

New Delhi: The fuel retail sector in India is poised to undergo a major facelift as the government prepares to put two of its three oil marketing companies (OMCs) — BPCL and HPCL — up for disinvestment/privatisation. While the news of BPCL disinvestment is not new, a response furnished by Minister of State for Finance Anurag Singh Thakur in the Rajya Sabha on November 19 has confirmed that along with BPCL, the government is also ready to offer HPCL to the private sector. The disinvestment of HPCL and BPCL is going to change the face of fuel retail market in a big way because until now, the market was dominated by three oil PSUs — HPCL, BPCL and Indian Oil Corporation (IOC).

HPCL, BPCL disinvestment: Bigger share of pie for private players

In India, a large chunk of the fuel retail market is controlled by oil PSUs. PSUs' market share marginally fell from 92.1 percent in FY2017-18 to 91.1 percent in financial year 2018-19 mainly due to network expansion by private players. At the end of FY2018-19, HPCL's market share amongst public sector companies stood at 21.03 percent, the company said in its annual report. BPCL's market share, on the other hand, was at 24 percent in the financial year ended March 31, 2019. After privatisation, a total of 45.03 percent of the fuel retail market will be opened up to the private sector. And this will be in addition to their own existing market share, which currently stands at 8.9 percent. The total market share that would be available to the private sector would be well over 50 percent.

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Retail outlets tally

At the end of FY2018-19, HPCL's total retail outlets stood at 15,440 and BPCL's at 14,802. In percentage terms, HPCL owns 24 percent of retail outlets and BPCL manages 23 percent. These outlets will also be transferred to private players after privatisation, giving them an edge in the arena of marketing. An OMC employee, on the condition of anonymity, said, "The transfer of these retail outlets will be a major boost for the private sector especially in metro cities because there's no space available for opening new retail outlets. And HPCL and BPCL have an enviable presence in big cities." In a written response in the Lok Sabha, Petroleum Minister Dharmendra Pradhan had informed the parliamentarians that by the end of 2017-18, Essar had 4,275 petrol pumps, Reliance had 1,400 retail outlets and Shell had 100 outlets.

What does this mean for the lone wolf, IOC?

Disinvestment would leave Indian Oil as the sole public sector undertaking (PSU) in the fuel retail market. With the public sector market share reduced to well below 50 percent, Indian Oil will have to stand up to stiff competition from a bunch of private players, including Reliance, Essar and Shell.

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