Companies like Saudi Aramco are required to invest a minimum of $282m
India is working on a policy change in fuel marketing in the country, with a view to allow entry of overseas petroleum majors such as Saudi Aramco and even supermarket chains to this sector without any restrictions.
Under the existing policy in India, companies – Indian and overseas - are required to invest a minimum of $282 million (Rs 2,000 crore) in any of the value chain in the petroleum sector – such as exploration and production, refining, pipelines or terminals - to seek government licence for fuel marketing.
Ministry of petroleum at the federal government is currently in discussions with the ministries of finance, commerce and law before finalizing the policy change on this for Cabinet approval, according to a report in Economic Times.
The move to liberalise the norms for fuel marketing followed recommendations to this effect by an expert panel, constituted last year, to review the 2002 guideline on grant of transport fuel marketing licence.
The expert 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 expert panel consisted of renowned economist Kirit Parikh, former oil secretary G C Chaturvedi, former Indian Oil Corp (IOC) chairman M A Pathan, IIM Ahmedabad Director Errot D’souza and Ashutosh Jindal, joint secretary in the ministry of petroleum and natural gas.
With India’s fast growing transportation, including aviation sectors and vast industrial sectors, demand for petrol, diesel and aviation fuel is projected to register sustained growth for several years to come.
Demand growth for petrol, diesel and ATF for 2018-19 was at 8 percent, 3 percent and 9 percent respectively.
Saudi Aramco has been keen on investing in India’s petroleum sector and has entered into a partnership agreement with India’s state-run refining companies for a proposed 60-million-tonne a year refinery.
Separately, the Saudi energy major has also said to have held parleys with Reliance Industries for investing in latter’s refinery project. It, however, was reportedly not keen on entering fuel marketing without having its own manufacturing hub in India.
Petroleum sector analysts said the proposed policy tweak on fuel marketing may not lead to a rush for entry by international energy companies or supermarket chains in the Indian market because of pricing and supply related issues.
“India’s fuel marketing sector is controlled by integrated refining and marketing oil companies and because of this sourcing of fuel for new stand alone or even overseas oil companies will be a problem,” Kalpana Jain, a petroleum sector analyst with Deloitte India told Arabian Business.
Pricing will be another issue. Even big companies like Saudi Aramco will have to assess availability of supply in term of how much of its production is tied up contractually and how much is available for free marketing, as also the business viability of the cost of building storage facilities and importing fuel to India for marketing, she added.
“They (foreign oil companies or supermarket chains) may not necessarily come or may come because of the proposed policy change in fuel marketing, as at the end of the day, it will be a business decision each company will have to take, considering supply sources and international prices trend of crude,” Jain said.