Aramco, France’s Total &Trafigura could be the immediate beneficiaries of a change in the licence rule.
By Sanjeev Choudhary,
The government is planning a major reform in fuel marketing to allow foreign energy giants such as Saudi Aramco, Total and Trafigura, as well as supermarket chains to enter the lucrative business.
The oil ministry has readied a Cabinet proposal to scrap the nearly two-decade-old rule of restricting the licence to market petrol, diesel and jet fuel to companies that have invested or propose to invest Rs 2,000 crore in exploration and production, refining, pipelines or terminals in the country, said a person with knowledge of the matter.
The ministry is consulting the finance, commerce and law ministries for the proposal that has adopted most of the key recommendations of an official panel that was constituted in March to review the 2002 guideline on grant of transport fuel marketing licence, said the person. The panel submitted its report late May.
India’s Fuel Market Expanding Rapidly
The panel had favoured ending minimum investment by companies as a licensing condition while introducing minimum net worth bar for licence-seekers. It also suggested opening up the sector to non-oil companies, imposing strict timelines for setting up petrol pumps, and penalties for not meeting the rollout plan.
The minimum investment-rule has been the biggest barrier for foreign players aiming to grab a share of the rapidly expanding fuel market in India. Demand for petrol, diesel and jet fuel has grown by 8%, 3% and 9%, respectively, in 2018-19.
Saudi Aramco, France’s Total and oil trader Trafigura could be the immediate beneficiaries of a change in the licence rule. Saudi Aramco recently wrote to the oil ministry that it’s keen on fuel retailing in India, according to a person familiar with the matter. The company though hasn’t submitted a formal application and is probably waiting for the rules to change, the person said.
Saudi Aramco CEO Amin H Nasser had told ET last year that the oil behemoth won’t enter fuel retailing without its own manufacturing hub in India. The company is in talks with Reliance IndustriesNSE 0.54 % for a stake in the latter’s refining unit. It is also partnering state-run firms for a proposed 60-million-tonnes a year refinery.
Late last year, India had rejected Trafigura’s plea for a fuel marketing licence on ground that its purchase of stake in a refinery in Gujarat in 2017 didn’t make it eligible.
Total has partnered Adani for its energy business in India but is yet to apply for a marketing licence.
The change in rule could also trigger the launch of fuel pumps by supermarket chains. This might open a big revenue source for supermarkets, although securing safe space for setting up pumps in cities would be an equally big challenge for them as it is for oil companies.
The panel wants companies to seek separate licences for retail and bulk businesses. Bulk is defined as minimum 12,000 litres per delivery to end users. A company seeking fuel retailing licence must have a minimum net worth of Rs 250 crore. And if the same company wants a bulk marketing licence, it must have a net worth of at least Rs 500 crore.
Companies seeking licence must set up at least 100 retail outlets, of which at least 5% should be in notified remote areas, within seven years of obtaining the licence, according to the panel’s recommendations.