The Telegraph
Since 1st March, 1999
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Shell piggyback plan irks PSUs

New Delhi, May 13: The public sector oil companies see little sense in allowing Shell to use their tankage and other infrastructure to implement its proposed retail marketing plan for petrol and diesel as it will adversely impact their profitability.

Shell has informed the petroleum ministry that it would “prefer to use the installations and depots of PSU oil companies spread across the country.”

Senior Indian Oil, Hindustan Petroleum and Bharat Petroleum officials are of the view that if Shell was permitted to use their valuable infrastructure, it would result in an erosion of their market share.

They also point out that there is no surplus tankage in the country. The government has made it mandatory for the national oil companies to set up storage facilities to stock petrol and diesel to meet the country’s requirement for 45 days. However, they have still not been able to achieve this target. Given this shortage in tankage capacity, it is not possible to accommodate another company.

Shell appears to be looking for a piggyback ride on PSUs as it takes a long time to set up oil storage terminals and depots. A substantial investment is also required since it takes close to Rs 2 crore to create a storage capacity for 1,000 kilolitres of fuel. Land acquisition at strategic points is itself a major hurdle and it has taken the national oil companies several years to create their nationwide infrastructure.

It is an uphill task for a new entrant to set up a chain of retail filling stations backed by adequate tankage infrastructure and a pipeline network. In fact, none of the oil firms, that were given marketing rights for selling petrol and diesel a year ago, have set any retail outlet as yet.

Oil sector experts say it is for this reason that both Shell and Reliance are keen to take over HPCL. The readymade infrastructure will give a head-start to any new entrant who succeeds in bagging the company.

HPCL also has retail outlets situated in prime locations in the major metros. It is impossible for a new company to set up filling stations at such locations as there is no land available. In fact, even Indian Oil, which was set up after BPCL and HPCL, had to start by setting up retail outlets in the suburbs. It is only with urban growth over the years that these filling stations have now become prime locations as well.

The national highways and the outskirts of cities are the first areas where the new companies can most easily make their entry. Here again, the public sector oil companies are surging ahead and there is fierce competition even among them.

The slower than anticipated growth in the demand for petro goods would be another cause for concern to a new entrant. While the growth rate for the demand of petroleum products was around 7 per cent per annum earlier, this has come down to less than 3.5 per cent.

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