Petrol Pumps in India : Problems and Prospects

“Petrol pumps are one of the most profitable business with good returns” is a general perception among significant proportion of total population in India. However, petrol pump profitability has been transformed dramatically over the past decades. Those days are gone when the owners of these pumps were satisfied with decent earnings. The service sector constitutes a major portion of India’s GDP with a 57 per cent share in GDP in FY2013-FY2014. Despite such a magical growth, the petrol pump business is loosening its shine with time.

The Oil Marketing Companies (OMC’s) such as IOCL, BPCL, HPCL etc. may have to face unprecedented challenges from RIL and Essar in coming years. It is clearly evident from recent news that RIL and Essar have taken the de-regulation of petrol and diesel and linking oil prices with the market rates as a welcome move. The war for the lucrative fuel market especially, in metro cities is heating up among these companies. The reason is that the owners of Dealer-owned dealer-operated (Dodo) pumps may ditch IOCL, BPCL, HPCL etc. and can result in unfaithful migration to RIL and Essar to sell petrol and diesel (known as MS and HSD respectively by OMC’s) and can buy fuel from any refinery. RIL and Essar have strong intent to set up pumps in big cities. Both finding and buying sky-scraping priced lands in populated area to set up a pump along with two figured approvals, including the explosive licensing is pretty daunting or persuade the Dodo’s into their fold. The former option can be rejected without keeping a second thought, since the prospective dealer can earn more money by building a shopping mall instead of a petrol pump. This has even tempted many owners of petrol pumps in Metro cities i.e. Delhi, Mumbai, Chennai, Bangalore and Kolkata to sell their centrally located petrol pumps to the real estate players for the building of residential complex, malls, housing complexes etc. Despite all these benefits of unfaithfully migration, it is expected to see the overwhelming majority of pumps switching which was expected but not seen so far. The reason is that Dodo’s owners are restless, since they are tied up in stringent contracts that disallow defection. According to IOCL, significant chunk of fuel retail outlets in the metros are on the verge of closing down because the un-willingness of landlords to renew their lease agreements. This portability of dealers to choose any brand has the immense capability to revolutionized this sector.

Apart from it, there is “Maharashtra Rent Control Act 1999”, which have resulted in removal of tenancy protection from this sector. Subsequently, large number of eviction suits was filed by landowners, resulting in verdict for surrender of the sites. This has resulted in rural penetration on large scale futuristic planning of opening retail outlet in rural areas. Operating a rural retail outlet has its own challenges. Frequent power cuts is prevalent in rural areas across the nation. This leads to dependency on diesel generator to serve their customer which directly puts a huge impact on their operational expenses. Also the locations of these sites are much far away from the depot. More often it takes 2-3 days of lead time to deliver oil from the depot by tank lorry. This creates the one operating cycle inventory (dead money) which has to be maintained to sustain the operation of outlet.

Tankers bringing in supplies are of typically 12000, 20000 or 24000 liters capacity. At the time of canting and decanting the tankers, a significant chunk of fuel gets evaporated due to high volatility. Apart from it, the large detection limit of dip rod used to measure the amount of fuel in tanker and inability to decant the tank till the last drop collectively escalates the incurred losses directly on the pocket of retail outlet dealers. The indicative estimate suggests that for every 12000 liters, he/she eventually sells only about 11.8 KL. Suppose a retail outlet have a monthly sell of 360 Kilo Liters (KL), so the accumulated losses would be around 6 KL. This leads to significant unimaginable monthly loss of about half an operating cycle. It is important to note that this is the common operation loss incurred by all petrol pumps.

Despite all these large amount of hurdles faced by dealers, OMC’s have evolved with smart and effective way to retain their present as well as futuristic dealers. The main motive for the OMC’s is to build healthy and lifelong bond of kinship with their dealers as well as their indirect customers. It is well accepted among experts that in the near future that malls and departmental shops will be much more in action, with petrol pumps situated on the outskirts of the city. Retail outlets owners will adopt the Customer Relationship Management (CRM)” approach by providing the customer other services such as the shopping malls, CCD’s and shops in its site. In the coming future, if all of them are implemented then customers can plan to travel to the outskirts to refuel the vehicle as well as other activities such as buying of ration, clothes etc in the outlet. Thus, the concept of “non-fuel retailing” is acting as key of reviving the bleak future of retail outlet dealers. It is clearly evident that the problem faced by OMC’s raise an alarm for them. The OMC’s are persistently working in search of effective and cost efficient solution to address this unique problem of retaining existing petrol pumps.

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hello Sir, Can you please tell me about the procedure and hurdles of shifting (change of location) of petrol pump dealership one state to another state in IOCL ?

Siddhartha Bhatnagar

Opinion of diesel gen sets to tackle frequent power cuts in a rural area is new to the generally commentary articles of petro retailing and NFR segment.
very nicely written

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