Refiners likely to add only a fourth of targeted petrol pumps in India

In November 2018, the three oil marketing companies (OMCs) – Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) – had come out with an advertisement floating tenders for 78,493 petrol pumps across the country. 

This move, which came just before the polls, was pitched as a step to create over one million jobs. However, according to executives, the number of new pumps to be added would be significantly less. 

IOC, however, has indicated that the three companies would be allotting only around 19,000 or nearly 25 per cent of the total outlets on offer. 

“We are coming out with outlets only on 25 per cent of the total areas that were on offer. During earlier bids, this was even less, at around 15-20 per cent,” said Gurmeet Singh, director (marketing), IOC, stating that the companies got only minimal interests from bidders.

Ahead of the elections in February 2019, IOC had told the media that it got bids for 95 per cent of the sites on offer and the three companies put together got over 400,000 bids. 

Of the 78,493 planned outlets, IOC was supposed to roll out over 37,000 new ones under this auction, while the rest was to be developed by the other two OMCs. 

The government had claimed that the move will see an investment of around Rs 90,000-crore.

The lower strike rate is not a surprise to industry executives and may not disrupt any of the retail expansion plans. 

“The completion rate in the past rounds have always been 15 to 16 per cent. This time, it is no different. The estimate is 20,000 outlets as best case and 10,000 in the worst case. So far, work has happened only on 5,000,” said another senior industry executive. 

The companies had even approached the petroleum ministry to seek exemption from the Election Commission, so that they can set up 31,800 outlets, citing that it was finalised prior to the election notification. Industry experts said this naturally raises doubts on “where the 95 per cent bids that the companies had told the media and where the 31,800 outlets that the companies wanted to start during the elections had disappeared.”

The lower rate can be attributed to the heavy investment needed and subdued demand. A petroleum association official attributed the low interest to the need to make heavy investment amid the low demand. OMCs bore the infrastructure cost during the earlier rounds. However, an investor has to bear both land and infrastructure costs during the current round. “OMCs have no involvement in the outlets. If an investor is putting in around Rs 2 crore per outlet, there is no guarantee of sales. With more outlets coming up, the average sales per outlet is also set to come down from around 170 kilo litre a month to around 120 kl, which will be unviable,” he added.

A CRISIL Research report highlighted that the increase in demand for auto fuels in India is expected to be at a moderate 5 per cent per annum up to fiscal year 2023. Up to fiscal year 2030, it is projected to abate further to 3.8 per cent. 

The report added that there is only room for less than half, or around 30,000 fuel pumps, if the pumps are to maintain current throughput levels. The senior industry executive quoted earlier said, “Regulatory hurdles and conflict over no-objection certificate (NOC) for land in family disputes are some of the issues.” The executive added, “The pandemic has also impacted construction speed.”