October 6, 2016 / 2:13 PM / 10 months ago

BP to set up fuel stations in India, challenge state firms' dominance

4 Min Read

A BP petrol station is reflected in a puddle in Moscow, Russia, July 4, 2016.Sergei Karpukhin

NEW DELHI (Reuters) - Global oil major BP plans to open up to 3,500 fuel stations in India, becoming the second overseas firm drawn to rising demand for gasoil and gasoline in the world's fastest growing major economy.

BP will join European oil major RoyalDutch Shell as the only foreign firms selling fuel in the country, challenging the market share of state refiners that control 93 percent of India's more than 56,000 outlets.

An oil ministry official told Reuters BP would be issued permission to set up the stations by Monday. A BP India spokeswoman confirmed the company had applied for a license to set up the fuel stations.

India is replacing China as the driver of global oil demand growth as its economy expands and a rising middle class buys motor vehicles. The International Energy Agency expects India to account for a quarter of global energy use by 2040.

"There is space for everybody as our fuel demand is growing," said M.K. Surana, chairman of state-owned Hindustan Petroleum Corp, adding that the entry of new players will make the retail market more competitive.

"State refiners will have to adopt novel ways to boost sales and retain their market share," added Surana, whose firm signed a deal this week to sell milk products at its retail outlets to attract customers.

India ended control over gasoline prices in 2010 and on diesel in 2014, making retail fuel attractive for private players like Essar Oil and Reliance Industries which are expanding their retail presence.

India recently allowed private firm Haldia Petrochemicals Ltd to see up fuel stations.

Strengthening Confidence

BP pulled out of a refinery and marketing joint venture with HPCL in 2006, when retail prices were way below market rates and federal financial support was given only to state firms.

"It is highly unlikely that India will revert to the subsidies regime, more so because of low oil prices. This strengthens the confidence of new players to enter the Indian fuel market," said Tushar Tarun Bansal, director at Singapore based consultancy Ivy Global.

Oil minister Dharmendra Pradhan said in June that global oil majors including Saudi Aramco and Total planned to tap the retail fuel market in India.

Indian fuel markets could be a lucrative prize for BP, which reported a 45 percent drop in second-quarter earnings. It has also received an Indian licence for jet fuel sales.

It is not clear where BP will source fuels for local sales. India's pricing formula gives higher profits to retailers with refining plants or domestic supply sources.

"BP already has a tie up with Reliance on the gas side so there is a possibility they may strengthen this relationship further to the downstream side of the business," said Bansal.

BP in 2011 acquired a 30 percent stake from Reliance in some exploration blocks and formed a gas sourcing and marketing tie-up with the Indian conglomerate. Reliance operates the world's biggest refining complex in western India, but controls only a small share of retail fuel markets.

"Any refining or product sale tie-up with BP will suit Reliance which recently decided to exit from the African market, leaving it to explore new geographies and clients for its fuel," Bansal said.

Reporting by Nidhi Verma; Editing by Elaine Hardcastle and Richard Pullin

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