Essar moves fast as government frees diesel price

Vol 18, PW 5 (23 Oct 14) Midstream & Downstream

Essar Oil bosses will have celebrated on October 18 when the government issued an order freeing diesel prices to market forces.

Essar, which was expecting the move for some time, has already begun work to revive its fuel retail business in India. In September the Mumbai-based group invited EoIs from anyone interested in setting up petrol and diesel stations on its behalf as franchisees.

"The response has been overwhelming!" confirms a senior Essar source. “In the last ten days we’ve received more than 7000 phone calls!” Essar, which has around 1400 stations, has signed franchise agreements to set up another 300.

"Most of them are at different stages of construction,” we hear. “Some may be commissioned soon.

" Essar wants 3000 stations in the next three years. Not counting land acquisition costs, a franchisee must commit Rs50 lakh ($81,000) to set up each fuel station with fuel storage and dispensers.

“We provide only the product,” adds Essar. Essar has chosen to adopt the franchise model for its fuel retail business to save money on land and infrastructure - the preferred model of state-owned rivals IndianOil, Hindustan Petroleum, and Bharat Petroleum.

In western India Essar sells petrol and diesel from its 20m t/y Vadinar refinery in Gujarat. "For stations in northern and eastern India,” says Essar.

“We source petrol and diesel from state-owned companies through swap agreements.”