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Reliance, BP will jointly fuel up India with 2,000 petrol pumps

Foreign fuel retailers are increasingly flocking to India to claim a share of the market because of the rapidly growing fuel demand in the country

Mumbai: Reliance Industries Limited (RIL) and oil major British Petroleum (BP) have plans to set up 2,000 petrol pumps in India over the next three years. According to two sources familiar with the development, the exact arrangement of the venture is still being finalised and will be ready in a few months.

Foreign fuel retailers are increasingly flocking to India to claim a share of the market because of the rapidly growing fuel demand in the country. Currently, most of the fuel is retailed by state-owned companies in India. Reliance operates 1,343 petrol pumps in the country, while BP received a licence to set up 3,500 fuel retail outlets in India in October 2016.

The BP-RIL partnership

When it comes to partnership, BP and RIL go a long way. The British oil giant has partnered with RIL 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. In order to get a licence to retail auto fuel in India, a company is required to invest a minimum of Rs 2,000 crore in exploration or production, refining, gas or product pipeline, or terminals. “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 marketing. It is in line with what we had planned to do,” V Srikanth, the joint chief financial officer of RIL, said after the company reported its second-quarter earnings on October 17.

RIL eyeing highways for setting up petrol pumps

According to the sources quoted above, RIL and BP are eyeing national highways to set up fuel stations. “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,” a source said.

The backdrop

Around 2014, RIL’s share of the fuel market had dipped to 0.5 percent and it was forced to shut down most of its petrol pumps because it could not match the subsidized price provided by state fuel retailers. At the time, state-owned Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL), were managing to sell fuel below production cost due to government subsidies. However, after the government deregulated petrol prices and diesel prices in June 2010 and October 2014, RIL began recording rise in sales and gradually increased its market share to 5 percent. At present, Reliance, Essar Oil and Shell India together have a 10% share of the fuel retail market, according to analysts.

The present

In the wake of rising fuel prices and the backlash that has followed it, the government was recently forced to cut the prices of petrol and diesel by Rs 2.50 a litre. While part of it (Rs 1.50) was an excise duty reduction, the government expected the remaining (Re 1 per litre) to be absorbed by state-run fuel retailers. But the price control mechanism employed by the government from time to time could prove to be a dampener for the private sector, experts believe. The state-run fuel retailers are buoyed by the fact that they have a larger network of stations when compared to the private sector and they also get subsidies from the government. As fuel prices fluctuate, beating the interventions made by the government to exercise control over the market will be a major challenge for the RIL-BP partnership in the time to come.