IndianOil may reply in favour of RIL is proposal for operating petrol pumps
New Delhi   19-Mar-2009
State-run fuel retailers including IndianOil are likely to respond by this weekend to Reliance Industries’ proposal for forming a joint venture for reviving 1,432 petrol pumps it had closed last year. Reliance had sought Expression of Interest (EOI) from IndianOil, Bharat Petroleum and Hindustan Petroleum for possible partnership for reopening the petrol pumps. “The EoI closes this weekend and in all probability IndianOil is likely to express its interest in the joint venture,” a source in the know of the development said. Reliance is proposing to hive-off its petrol pumps into a joint venture company and state-run firms have been asked to quote the equity stake they may want in the new venture and their model for operating it. The partnership with state-run firms would help Reliance overcome the handicap of not being able to use fuel from its two refineries at Jamnagar in Gujarat because they have been converted into only-for-exports units. The source said the state-run firms have to decide if it was beneficial to acquire pumps that may eat into volumes of their existing outlets. Also, they need to address how they would handle co-branding of these outlets. HPCL was not favourably inclined to the proposal while BPCL had not made up its mind yet, he added. A Reliance spokesperson was not available for comments. The company, which had invested Rs 5,000 crore in setting up the retail network, had previously worked on three different models to reopen the 1,432 pumps, the source said. Firstly, it wanted the government to free fuel pricing so that it gets a level playing field to compete with the dominant public sector that had last time forced it out of business by selling fuel below cost. Simultaneously, it tried to get approval for selling fuel from its only-for-exports labeled refinery as it would have otherwise attracted penal duties that are levied to discourage Export Oriented Units (EOUs) from selling domestically once they avail of income tax break by virtue of that label. Facing election, the Government refused to free fuel pricing while the Finance Ministry out rightly rejected its other demand, the source said. Reliance then sought fuel from the public and private refiners to reopen the outlets. Essar Oil, which runs a refinery close to the company’s twin refineries at Jamnagar, offered fuel. Mangalore Refinery, a unit of state explorer Oil and Natural Gas Corp (ONGC), may also feed some of the Reliance outlets. To begin with, outlets in Gujarat and Maharashtra will be reopened. The source said the positive margins on petrol and diesel was the primary mover behind Reliance deciding to reopen its outlets. IndianOil, BPCL and HPCL are selling diesel at a profit of Rs 4.04 per litre over the import cost. Private firms can capture a good market share by selling fuel a tad below the PSU rates and even then make handsome profits.