Wobbly demand dampens fuel scheme: Major cos give it a miss
Demand for diesel and petrol, which were severely impacted by the pandemic, have not yet fully recovered to pre-Covid levels.
AN UNCERTAIN demand scenario has put off major players from applying for fuel marketing licences, under the relaxed norms for entry into retail fuel marketing, according to government sources.
The Indian Express has learnt that only eight firms have applied for marketing licences under the relaxed norms, notified in October 2019,of which six have been approved. Adani-Total Fuels Marketing Ltd, which had indicated that it would apply under the new norms, has also not applied. Saudi Arabia’s national oil company, Saudi Aramco, and the Abu Dhabi National Oil Company, which were also considering jointly entering the fuel retail space in India, have not applied.
Experts said uncertainty around demand for fuel during the Covid pandemic may have been a factor behind major companies delaying their plans.
The Petroleum Ministry had relaxed requirements for entry into the fuel marketing space, including the requirement that a player should have investments of Rs 2,000 crore in crude oil exploration and production, refining, pipelines or terminals. The easing in norms had also included a requirement that 5 per cent of all new retail outlets should be launched in remote areas to ensure greater spread of fuel availability.
“There haven’t been any applications from any major players,” said a government official, adding the government had approved six of the eight applications for licences under the new norms. The official noted that Reliance Petro Marketing Ltd, which has a licence to market fuel to retail customers, had sought and received licensing to enter bulk marketing.
Sources told The Indian Express that Adani-Total was in the process of studying the market opportunity for fuel retailing, including CNG, Bio-CNG and electric vehicle charging points, before coming out with an integrated plan. The new regulations mandate that all new retail points also offer at least one alternative fuel, such as CNG, biofuels, liquefied natural gas, electric vehicle charging points, at their retail outlets.
The Ministry of Petroleum and Natural Gas and Adani-Total did not respond to requests for comment.
Demand for diesel and petrol, which were severely impacted by the pandemic, have not yet fully recovered to pre-Covid levels. Total fuel consumption in India fell 9.1 per cent in FY21 due to the impact of Covid-related restrictions. Demand has still not recovered fully to pre-pandemic levels this fiscal, with fuel consumption in the first quarter of this fiscal down 12.2 per cent, compared to Q1FY20.
“Anyone who is considering setting up retail fuel outlets would like demand to return to pre-Covid levels and for the growth trajectory to come back,” said Vivekanad Subbaraman, analyst at Ambit Capital, adding the fall in demand had impacted fuel retailers that have otherwise seen a steady increase in their margins on fuels over the past decade.
Experts also noted that high excise duties, pushing up petrol and diesel prices, were also likely contributing to uncertainty among potential entrants.
“Demand is not insulated when prices are so high,” said an expert. Petrol and diesel prices are currently at all-time highs in various parts of the country. Last year, the government increased the excise duty on petrol by Rs 13 per litre and Rs 16 per litre on diesel to shore up its finances amid the pandemic.
The hikes in taxes have led to consumers in Delhi paying about 35 per cent more for petrol and about 32 per cent more for diesel since the beginning of 2020, even though the price of crude oil has risen only about 11 per cent in the same period.
Currently, the country has about 65,000 retail outlets for marketing of fuel, of which about 89 per cent are operated by three leading state-owned oil marketing companies, Indian Oil Corporation Ltd, Bharat Petroleum Corporation Ltd, and Hindustan Petroleum Corporation Ltd.
