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Essar Oil on a strong wicket

Mumbai, Oct. 8: The dark days are over for the Ruias in the oil business. Their Essar Oil will start commercial production from its refinery at Vadinar, Gujarat, next month and beef up its retail network that was set up three years ago and had experienced great difficulties since then.

With crude prices falling and the refinery going onstream next month, many of Essar Oilís franchisees have re-opened the petrol pumps in the past few weeks, prompting the company to expand its retail network across the country.

Sources close to the company said 800-1,000 outlets will be fully operational by the end of this month, while another 550 are being set up.

The company aims to have a network of 1,500 retail outlets by the end of this fiscal. It has also identified 800 sites for new outlets.

Essar Oil was the first private company to set up petrol pumps. The company followed the franchisee route, in an aggressive rollout exercise that made it the number one private retailer for a period of time ahead of the current leader Reliance.

However, the plans suffered a setback owing to the absence of a refinery, the rise in crude prices and retailers being forced to sell at a loss. The company was not only buying petrol and diesel from other refiners, such as Indian Oil and Mangalore Refinery and Petrochemicals Ltd, but was importing them as well.

Many of the franchisees got enmeshed in problems of marketing and supply of crude that forced them to down shutters. At one point, close to 300 of the 500 outlets were closed.

The situation, however, has now markedly improved, with various initiatives of the company yielding good results and the external environment turning in its favour.

Sources said the company offered incentives to franchisees, such as the ad-hoc compensation of 12.5 per cent on the investment in an outlet, and paid their lease rentals.

The softening of crude oil prices has also helped the company ó the prices are around the $60-per-barrel mark and there are speculation of prices falling further on apprehensions of a slowdown in the US economy.

In the meantime, the company is in the final lap in the construction of the Vadinar refinery, which will start commercial production from next month.

The refinery will initially produce 7 million tonnes of petrol and diesel and attain full capacity by the end of this fiscal.

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