Port Facilities

Currently, facilities for import of POL products including crude is available in varying degrees in all the 12 port locations at Kandla, Okha, Mumbai, JNPT (Mumbai), Vasco, Mangalore, Cochin, Tuticorin, Chennai, Vizag, Haldia, Paradeep and BudgeBudge. The port facilities however suffer from serious constraints and considerable expenditure on demurrage is paid to coastal and foreign flag vessels.

LPG bottling plants

LPG, in packed form is currently being marketed in 14.2 kg, 19 kg and 50 kg cylinders however, special facilities are needed to pack the LPG in bottles. LPG bottling plants are setup near the markets to facilitate return movement of empty cylinders. Among the PSUs, IOC, HPCL and BPCL are marketing packed LPG.

One of the main objectives of APM is to optimize the utilization of refining and marketing infrastructure by treating the facilities of all the oil companies as common industry infrastructure. This can be accessed by all oil companies through hospitality arrangements and thus eliminate wasteful duplication of investment. The facilities of oil companies have been developed over a period of time and oil companies have been operating at several locations without owning the infrastructure and using facilities of other companies on a reciprocative basis. In several places, the oil companies do not even have office space and the company that owns the facility prepares the invoice. In the event of decontrol, a lot of complications may arise on this account and till such time the facilities are put up by other companies, it may result in cross-haulage of products with its attendant ramifications. Further, it could result in duplication of facilities for bottling, tankages for storing, distribution infrastructure like loading gantries, which may not be optimally utilized. This could be one of the serious hurdles that needs to be addressed before the industry is fully decontrolled. The subject has been dealt in detail in the chapter on De-regulation.

The region-wise consumption of petroleum products is given in table.

Region-wise consumption of petroleum products

Sales In tmt - 1995-96 Percentage Share

As per studies conducted by OCC, the consumption of petroleum products is likely to reach a level of 113 mmt by the year 2001-02. Moreover with the commissioning of planned refineries, excepting for northern and eastern India, product availability would be in surplus. There would however be a huge deficit in the northern region this could be partially met by refineries in the western region using the Kandla - Bhatinda pipeline. The refineries currently being set up in the western and northeastern part of the country carry a risk of operating in the region, where products are in surplus, thus they would have to compete directly with the existing players in the sector. Disposal of the product itself could be a serious problem in the northeast with no choice but to export the surplus.

Marketing network

The marketing network of oil companies consist of retail outlets through which MS & HSD are sold, distributorships on a franchise basis for distribution of LPG to a dedicated set of customers attached to each company and SKO & LDO dealerships for distributing SKO/ LDO.

Strong growth has been witnessed in the retail segment and this segment is likely to grow at double-digit rates. Due to the slowdown in industrial activity in
1996-97, there has been a sharp decline in the consumption of bulk products with the annual growth rate falling to less than 4% in 1996-97, pushing down the overall growth rate.

The focus of the oil companies has now shifted to the retail customer with more and more value-added services being provided at retail outlets, especially with little maneuverability on prices. The pump outlets are being modernized with refreshing signage, thus the thrust is on creating strong brands. BPCL has been a leader in this segment and this has yielded them rich dividends as their growth rates in the retail segment has been the highest in the last 4-5 years.

In order to contain the deficit arising in marketing of products like SKO & LPG, the government introduced the parallel marketing scheme. LPG & SKO were decanalized, their import duties were brought down and the private sector marketers were allowed to market these products at market related prices. However, due to huge price disparity in the products marketed by these players vis-a-vis the price at which the products are sold by PSUs, besides volatility in price of imported products, the scheme has not taken off and many entrants into the sector have left the scene. The success of the scheme would critically depend on the time frame in which uniform pricing is introduced.

The marketing oil companies are in an enviable position of having an established marketing network, a vastly depreciated storage & distribution network and it would not only be cost-prohibitive but also extremely difficult to replicate the facilities in place. This could be a key barrier for new entrants into the business. The sales volumes are also likely to grow at a CAGR of more than 7% and the sales volumes of the oil companies would double in the next decade. The key drivers to profits would be retail products like MS, HSD and LPG, and companies focussed on retail markets are also likely to gain strength. It may however be noted that competition among the existing players may emerge and a lot would depend on the strategy and sales focus of each of these companies.