'Adulterating fuel outlets will soon be out of biz'
Mumbai 16-Jul-2010
A day after the details of the new de-regularised petrol pricing regime are worked out, B M Bansal, chairman of the largest company shares his outlook on the opportunities and threats opened by the entry of private players into fuel retailing. Excerpts from an interview with DNA:
Will IOC become another BSNL as private players eat into your market share?
Definitely, when there are more players in the market, the share of existing players will come down. To what extent it will come down to has to be seen because IOC has the edge on others as far as infrastructure is concerned, in terms of pipelines, distributed refineries etc.. Besides, as a public sector company, we are expected to supply to far away, remote locations like Leh, Manipur etc.. So if you are talking about level playing field, the government should force others also to sell in places that are disadvantageous or unattractive from a commercial point of view. Only then will it be fair competition.
The fight cannot be just in urban areas.
Which areas do you expect competition to come in?
Competition will there in price, quantity, quality and the behaviour of the sales persons... To match up, we are beautifying our outlets. On quality, there may be some perception that the private players are giving better product. But the product is being made to BIS specifications, both by us and them. We are carrying out many checks. Now we are also going for automation using remote sensors placed in the [storage tanks of] retail outlets. We can monitor it in real time from our headquarters. If there is a sudden increase in quantity, we can make out that something has been added to the stock.
Can the entry of private players impact your marketing margin, which has so far been more or less stable due to lack of competition?
If there is a price war, it can dampen the margins.
Your Achilles' heel, which the private operators highlight in their advertisements, is adulteration at the retail end. How do you intend to tackle it?
With this competition coming, our distributors will realize that they will soon be out of business because consumers will start going to other outlets. If you feel that you get a lower mileage when you go to a particular pump, you will not go there. Such pumps will end up with only odd customers. Such pumps will soon turn unviable. Distributors have to see the long term impact.
What is your expectation on diesel deregulation?
The ministry is saying diesel will also be deregulated (from government price controls) in due course.
Even after petrol and diesel price deregulation, there continues to be the overhang of cooking fuel subsidies on your finances. What is the ideal solution out of this mess?
The ideal solution will be that if the government wants to keep some product under the subsidy regime, they must put the provisions in the budget itself so that there is no uncertainty for the oil companies. Even the provision does not entirely cover all possibilities, at least to some extent, they should make a budgetary provision. Besides this, they should make it very clear that whatever under-recoveries are made will be 100% met by the government. If they don't give the organization a free hand, how will it know what its cash flow and profit are going to be? You cannot have everything.
One of the criticisms against the subsidy regime has been that it robs companies like yours from predictable cash flows, preventing investments for growth. Will that change once diesel too is freed up?
For any organisation to grow, expansion, de-bottlenecking and new units are must. This is a growing sector, you must put up new refineries, outlets and pipelines. Continuous investment is required and if you can't make profits you cannot invest.
You have been prevented from investing?
Yes, for the last two-three years, it has been the case. At one time, our borrowing had gone to Rs 70,000 crore and we were not sure whether we would be able to buy crude. The banks were showing reluctance to loan more money... At that time, were thinking of putting up a refinery and petrochemical project in Paradip, but we had to keep the petrochemical project on hold due to this. A number of projects were kept on hold or slowed down.
Now that there is more visibility over cash flows, which areas would you be investing in?
Once the Paradip refinery is completed, there will not be any more refinery expansion for the next 4-5 years, we won't be putting up any more refineries. For now, our focus will only be on exploration and production, petrochemicals and renewables.
What are your expansion plans for your retail network?
We have more than 18,000 [motor fuel] outlets now and we have been adding around 700 per year for the last few years. It will remain the same, but 60% of the new ones will be in rural areas because in urban areas, the number of outlets is so high that a number of them are becoming unviable... As for LPG, the government's target is to cover 75% of the population by 2015, with a minimum of 60% in any state.
Your public float is around 20%, including cross holdings by other government companies. With the new 25% threshold, will the government be divesting its stake soon?
Government will have to dilute 5% more and when the government does it, we may also issue some fresh equity. IOC would like to raise around Rs 10,000-12,000 crore [by issuing fresh shares] within one year.
