RIL may sell or lease 1,432 pumps to IOC

Reliance Industries [Get Quote] may propose to sell or lease its 1,432 petrol pumps to Indian Oil Corporation [Get Quote], even as it will shortly reopen the outlets that were shut a year ago.
Reliance may propose to transfer its petrol stations into a joint venture company run by the state firm, a source said. "The company had invested about Rs 5,000 crore in setting up the retail network and it does not make sense to keep it idle," he said.
The partnership with IOC would help the company overcome the handicap of not being able to use fuel from its two refineries at Jamnagar in Gujarat because these have been converted into only-for-exports units. Also, it would enable the pumps to avail of subsidy if the government doesn't free fuel pricing and international oil prices bounce back.
But IOC has not yet taken a view on the feelers sent by Reliance, the source said. A Reliance spokesperson did not return calls made to get company comments.
The company, at the same time, is buying petrol and diesel from refiners such as MRPL and Ruias-owned Essar Oil [Get Quote] to reopen its petrol pumps in phases.
"The company has started removing the protective gear put around dispensing units when the petrol pumps were shut in March last year. From Monday (March 16), it will start preparation to sell petrol and diesel from some of these," a source said.
However, an official said Reliance has not made any decision on reopening of the petrol pumps just yet.
The source said outlets in Gujarat and Maharashtra will be reopened first. Reliance will buy petrol and diesel from Essar to fuel its outlets in Gujarat.
"The most important factor aiding the reopening is the positive margins on fuel," the source said.
Public sector firms like IOC, Bharat Petroleum and Hindustan Petroleum are selling diesel at a profit of Rs 4.04 per litre over the imported cost. Private firms can capture a good market share by selling fuel a tad below the PSU rates and even then make handsome profits.
Essar, which used the sliding oil prices since October 2008 to reopen about 1,200 out of its 1,290 petrol pumps and is planning to add another 1,500 in the next one year, is selling diesel at Rs 0.45 to 0.50 a litre lower than PSU rates. On an average, its outlets are clocking about 100 kilolitre a month fuel sales and 80 per cent of this is diesel.
However, margins on petrol are just Rs 0.33 a litre and diesel is the most used fuel and comprises most of the volumes sold by outlets on highways, where Reliance petrol pumps are mainly located.
Reliance had recently written to the three-state fuel retailers, IOC, BPCL [Get Quote] and HPCL [Get Quote], seeking partnership to revive its petrol pumps.
It had shut all of its 1,432 petrol pumps in the country a year ago after sales dropped to almost nil, as it could not match the subsidised price offered by public sector competition despite the rising cost of crude oil.
IOC, BPCL and HPCL get bonds from the government and discounts from crude producer ONGC [Get Quote] for selling petrol, diesel, domestic LPG and kerosene below cost.
Reliance is now using fuel from other refineries to reopen these outlets as the only-for-exports status for both its refineries at Jamnagar prohibits it from selling fuel domestically.
Jamnagar-1 is an Export-Oriented Unit, while Jamnagar-2 is an SEZ refinery. The EOU status of 660,000 barrels per day Jamnagar-1 will end in March 2010 and supplying fuel domestically from it would attract double excise and Customs duties, jacking up rates by Rs 9-10 a litre.
The source said the company had also written to PSU retailers on partnership in the aviation business.
Reliance, which entered the high-growth aviation fuel segment in 2007 and has presence at 14 airports in India, may want an infrastructure sharing arrangement with the PSUs who are dominant jet fuel re-fuellers at airports.
IOC, BPCL and HPCL own aviation turbine fuel storages and hydrants at major airports and Reliance may want to share these to sell fuel to airlines.
Reliance has refuelling facilities at 14 non-metro airports and work at three other airports was in advanced stage of completion.
All major domestic airlines and a few major international airlines (Emirates and Qatar Airways) have started refuelling from Reliance fuelling stations. It also operates a fuel storage and service facility at the Shamshabad international airport at Hyderabad.
The source said the company may want access to PSU facilities and barter fuel at some airports.
None of the three companies has till now shown any inclination for a partnership.