Quick Take

Why have private petrol pumps not come up?

| Updated on November 27, 2019

Fuel pump at a fuel station   -  The Hindu

A liberalised fuel retail policy must be accompanied by genuine price decontrol

India’s liberalised fuel retail policy requires licensees to set up a minimum of 100 petrol pumps, with at least 5 per cent of them in remote, rural areas. The latter should come up within five years of getting the licence.

The condition to set up a 100 petrol pumps does not seem convincing, even if the provision to invest to backward areas is desirable. Investment criteria would have made more sense.

On paper the policy is exciting as it opens up the market. However, a major portion of India’s oil retail business is owned by public sector oil marketing companies. Since fuel pricing has a direct impact on the vote bank, the government informally instructs these companies on the eve of elections to hold down retail prices – which are supposed to be market linked. Private players are therefore not assured of free and fair competition, which is key to ensuring a higher number of players. A hands-off approach to pricing should become the norm.

Petroleum retailing at one point of time was an attractive business to be in, when the private sector giants were also in the fray. Then came a period when the private sector had to call it quits or suffer huge losses – due to the government controlling the price. Once again, the tide is turning, with the Modi government deciding to open up the auto fuel sector to non-oil players as well.

While tweaking the authorisation norms to sell auto fuel, the government allowed companies with a net worth of Rs 250 crore and more to get into this business. The earlier policy mandated that for marketing transportation fuels, a minimum prior investment of ₹ 2000 crore in the domestic oil and gas sector was a must.

The new policy also requires the authorised entities to install facilities for marketing at least one new generation alternate fuel, like CNG, LNG, biofuels, electric charging, among others at these retail outlets within three years of commencing operations.

The need of the hour is to have stable auto fuel policy that makes business a fair game for one and all.

Published on November 27, 2019

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