RIL’S FUEL RETAIL VENTURE

Shell's India Unit, IndianOil In Race To Pick Up 50% Stake In

INDIA'S most valuable company, Reliance Industries (RIL), will induct a partner into a planned new venture that will house its loss-making fuel retail business, and state-owned IndianOil Corporation (IOC) and the Indian unit of Anglo-Dutch Royal Dutch Shell are the front-runners for the 50% stake it is willing to offer, a person familiar with the matter said.
    The company, which operates the world's largest refining complex at Jamnagar in Gujarat, has no plans to completely exit fuel retailing in the country, but is, at the same time, keen to recoup some of its past losses, estimated to be several thousands of crores.
    "We want to look at options of a collaboration with existing market players," RIL's CEO for its oil and gas operations PMS Prasad told ET.
    The group recently invited bids from a raft of Indian and overseas companies, notably IOC, Shell India, BPCL and HPCL, and the person said it could consider even offering a majority stake of 51% to the partner.
    RIL has invested nearly $1.4 billion to date in the fuel retailing business and has built up a network of 1,432 petrol pumps across the country. Creating a separate company for this business and divesting a part of its equity in it could help RIL shift its accumulated losses from fuel retailing away from its books.
    Analysts also said Shell India and IOC, the country's largest oil marketing company, are the obvious frontrunners for the stake, the sale of which will help RIL recoup some of its past losses and share meet the challenges of India's price-controlled retail fuel market.
    IOC, which controls almost 50% of India's retail market for fuel, and Shell, which has set up an LNG terminal in Gujarat and has a licence to sell fuel in the country, are expected to put up a tough fight to acquire the stake.
    "We are looking at the proposal and will take a call after the due diligence is done," said IOC chairman Sarthak Behuria. IOC has appointed a financial advisor to carry out a due diligence on the information memorandum RIL has circulated among potential bidders.
    "Shell does not comment on speculation and rumour," a spokesman for Shell said in response to an emailed query.
    While a partnership with IOC, which is majority-owned by the government, will give the joint venture more influence in the corridors of power, considering that prices are subsidised, a partnership with Shell could help RIL sell refined products from its refinery in overseas markets, analysts said.
    The company recently ended a partnership with US oil company Chevron, which could have helped it market its products overseas.
PUMP IT UP
Empty Run
RIL has 1,432 outletsprimarily along the GQ highway and East-West corridor. But it shut these stations across India after record oil prices made it impossible to compete with public sector refiners that sell fuel cheaper, but get compensated
New Game Plan
RIL to float separate JV for fuel retail business by offering 50% stake to partner. IOC & Shell India are the front-runners
IOC's View
IOC has a large footprint and a say in government corridors, being a government-owned company. With over 17,600 petrol pumps, IOC is the largest fuel retailer, with a 50% marketshare
Shell's Strategy
Shell India, a subsidiary of Royal Dutch Shell, boasts of a large global footprint. Known for its deep pockets, the company is likely to pay a higher price RIL outlets hold more land banks
SHELL, which has deeper pockets that IOC, will also gain access to a domestic refinery and expand operations in what could become one of the world's leading markets for fuel, as the Indian economy grows and automobile numbers increase. Shell India now has a marginal presence in the South and buys most of its fuel from Mangalore Refinery and Petrochemicals, a subsidiary of staterun oil company ONGC.
    RIL's network of petrol outlets is largely located on the Golden Quadrilateral and the country's East-West corridor, where fuel sales are higher. Most of these outlets, which have been shut since last year after high global crude prices made them unable to compete with subsidised fuel sold by pumps operated by state-owned companies, also come with significant land banks and were meant to house hotels, food courts and other similar facilities.
    Company officials say RIL is not keen to completely exit the business as it would run counter to its ambition of being a leading player in this area in India. Moreover, the network of outlets will also come in handy when it sells compressed natural gas at a future stage.
    Despite the government announcing decontrol of retail fuel prices in 2002, petrol, diesel, cooking gas and kerosene continue to be sold at government-administered prices, which are often way below the cost price.
    Public sector oil companies, which market the fuel at these controlled prices are compensated for their losses by the government. However, private fuel marketing companies are not eligible for any such compensation.
    soma.banerjee@timesgroup.com