Government opens up fuel retailing to non-oil companies

Briefing reporters about the decisions taken by the Cabinet, I&B Minister Prakash Javadekar said the opening up the fuel retailing will increase investment and competition

New Delhi:In the biggest reform in fuel retailing sector in almost two decades, the government on Wednesday relaxed norms for setting up petrol pumps, allowing non-oil companies to venture into the business - a move that could help private and foreign firms to enter the world's fastest-growing market.

At present, to obtain a fuel retailing license in India, a company needs to invest Rs 2,000 crore in either hydrocarbon exploration and production, refining, pipelines or liquefied natural gas (LNG) terminals.

Companies with a net worth of Rs 250 crore will be allowed to sell petrol and diesel subject to condition that they install facilities for marketing of at least one new generation alternate fuel such as CNG, LNG, biofuels or electric vehicle charging within three years of start of operations, Information and Broadcasting Minister Prakash Javadekar said here.

The retailers will necessarily have to set up 5 per cent of the total outlets in rural areas within five years, he said while briefing reporters on the decision taken by the Cabinet Committee on Economic Affairs (CCEA) headed by Prime Minister Narendra Modi.

"The new policy will bring in more investment and give a fillip to 'Ease of Doing Business'. It will boost direct and indirect employment in the sector. Setting up of more retail outlets (ROs) will result in better competition and better services for consumers," he said.

The government had last set fuel marketing conditions in 2002 and the review now is based on the recommendation of a high-level expert committee.

The move will facilitate entry of global giants such as Total SA of France, Saudi Arabia's Aramco, BP Plc of UK and Trafigura's downstream arm Puma Energy.

Total in partnership with Adani Group had in November 2018 applied for a license to retail petrol and diesel through 1,500 outlets. BP too has formed a partnership with Reliance Industries to set up petrol pumps, but is yet to make a formal application.

While Puma Energy had applied for a retail license, Aramco was in talks to enter the sector.

State-owned oil marketing companies - Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) - currently own most of 65,554 petrol pumps in the country.

Reliance Industries, Nayara Energy - formerly Essar Oil - and Royal Dutch Shell are the private players in the market but with limited presence. Reliance, which operates the world's largest oil refining complex, has less than 1,400 outlets.

Nayara has 5,344 while Shell has just 160 pumps.

BP plc of UK had a couple of years back secured a license to set up 3,500 pumps but hasn't yet started doing so. It is now venturing into the business with Reliance with plans to scale up Reliance's present network strength to 5,500.

"The entities seeking market authorization for petrol and diesel are allowed to apply for retail and bulk authorization separately or both," an official statement issued on CCEA decision said.

The companies have been given flexibility in setting up a joint venture or subsidiary for market authorization.

"In addition to conventional fuels, the authorized entities are required to install facilities for marketing at least one new generation alternate fuel, like CNG, LNG, biofuels, electric charging, etc. at their proposed retail outlets within 3 years of operationalization of the said outlet," it said.

"An individual may be allowed to obtain a dealership of more than one marketing company in case of open dealerships of PSU oil marketing companies but at different sites."

The high-level expert committee while suggesting scrapping of the Rs 2,000 crore investment norm for setting up petrol pumps had proposed grant of authorization on submission of a bank guarantee that could be encashed in case of failure to perform stipulated conditions.

Failing to set up a minimum of 5 per cent of petrol pumps in identified remote areas was to attract a penalty of Rs 3 crore per pump. But firms can at their choice deposit Rs 2 crore per remote area pump at the time of licensing to get an exemption from the clause, the panel had said.

Currently, IOC is the market leader with 27,981 petrol pumps in the country, followed by HPCL with 15,584 outlets, and BPCL with 15,078 fuel stations.

The expert committee had proposed the collection of a bank guarantee at the rate of Rs 3 crore per remote area petrol pump as a security towards the company meeting its universal service obligation as per timelines.

The expert committee was set up in October last year and was asked to "look at various issues related to the implementation of existing guidelines for grant of the marketing authorization of market fuels - petrol, diesel, and aviation turbine fuel (ATF)".

The panel includes renowned economist Kirit Parikh, former oil secretary G C Chaturvedi, former IOC chairman M A Pathan, IIM Ahmedabad Director Errot D'souza and Ashutosh Jindal, joint secretary in the ministry of petroleum and natural gas.