Essar freezes its petrol station building programme

Vol 11, PW 23 (03 Apr 08) Midstream & Downstream

Essar Oil and Shell will be taking a hard look at their retail petrol and gas business this month following Reliance’s abrupt decision last week to close 900 of its 1400 stations across India.

Attracted by government promises of a â€کlevel playing field,’ Reliance, Essar and Shell were the only three major private sector oil companies in India to set up petrol pump chains across the country, following the government’s widely-applauded decision to open up the sector to private competition on March 8, 2002 and reduce the monopoly of state-owned Indian Oil, Bharat Petroleum, HPCL and IBP. Contacted by PETROWATCH, Essar confirms it has frozen plans to expand the number of stations it operates from the 1286 it operates now.

When it was awarded a licence back in May 2002, Essar was given permission to open 2500 stations, opening the first in September 2003 in the coastal Ratnagiri district of Maharashtra. Essar was the first private sector petrol vendor in India, offering quality service and unadulterated fuel in correct measure at more or less the same prices charged by state-owned retailers.

“By March 2005 we had only 500 outlets,â€‌ confirms Essar. “But were selling a total around 70,000 tonnes of petrol and diesel per month by weaning away customers from state-owned oil companies.

â€‌ Soaring crude prices soon ended the happy honeymoon when private sector companies were forced to pass on the increase to customers from May 2005. Fearing a political backlash, the government ordered state-owned players to maintain prices at current levels, cushioning them with oil bonds.

“Our prices are today higher by between Rs6 and Rs8 per litre for petrol and diesel compared to state-owned oil companies,â€‌ confirms Essar. “As our prices have risen our volumes have gone down.

â€‌ Instead of heady sales of 70,000 tonnes a month when the company first began operations in 2005, Essar today sells only 10,000 tonnes per month.