Adding over 78000 petrol pumps uneconomical: Crisil

 

New Delhi, Jun 20: The government plan to more than double the number of petrol pumps in the country does not make economic sense as more number of outlets would only cut into each other’s sale, leading to some unprofitable, Crisil Research said in a report Thursday.
The three public sector oil marketing firms – Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) – in November last year advertised to open 78,493 more petrol pumps in the country. This on top of 64,624 fuel retail outlets currently operating in the country.
“Apart from expansion spree by public sector OMCs, private players are adding fuel retail outlets as well. The joint venture between Reliance Industries Ltd and BP Plc, and Nayara Energy Ltd (formerly Essar Oil Ltd) have plans to add 2,000 pumps each in the next three years, whereas Royal Dutch Shell Plc is slated to add 150-200 petrol pumps over the period as well,” the report said.
As the addition of pumps will also be followed by closures where throughputs are not at sustainable levels, private players are expected to effectively add 7,500-8,000 petrol pumps till fiscal 2030, based on their plans and the pump licenses they hold.
“The analysis shows that the economics do not support the addition of 78,000+ petrol pumps. CRISIL Research is of the opinion that there is only room for less than half, i e about 30,000 fuel pumps, if the pumps are to maintain current throughput levels,” the report said. Throughput refers to per pump sale of petrol and diesel.
Crisil Research built scenarios, taking into account the investment for setting up a petrol pump and economics of the dealer owned dealer operated (DODO) model, to understand the number of outlets required to keep throughput at break-even levels.
“If only 30 per cent of the proposed petrol pumps are commissioned, i e about 30,000 fuel pumps, it would be able to meet break-even throughput over the next 12 years; pump throughput is expected to remain at current levels of 160+ kilolitres per month (KLPM), which will keep the dealer’s returns stable at 12-15 per cent,” it said.
However, at 50 per cent, pump throughput could decline below break-even for a few years and recover towards the end of the forecast period, provided the oil marketing companies do not add networks aggressively owing to already huge expansion in the previous years, and the absence of lucrative locations.