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Oil giant in troubled water
By siliconindia
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Monday, 09 October 2006, 19:30 IST
Mumbai: Indian Oil, the Hercules of India has dominated the industry for over four decades, having a monopoly over supplies to the defence forces, state transport corporations and the railways. But now a primary competitor Reliance Industries challenges this achievement, said a Economic Times report.
Indias single-largest enterprise controlling over 50 percent of the diesel market in India and close to 45 percent of the petrol sales is in troubled water. Along with stiff competition, the governments petro-pricing policy forces oil companies to retail fuel at a loss. Large under-recoveries in the sales of petrol, diesel and LPG now threaten to wipe off the gains made in the refining and pipeline business. The loss is that profitability is depleted at a time when the company needs to make huge investments in almost all spheres of its operation.
IOC has already shown a loss of 2.5 percent in the diesel market during 05-06. Its total fuel sales were 48.06-mili tonn of fuel during the year, down almost 4 percent from last years sales. Despite putting up a record number of fuel stations during the year, the throughput per pump, a barometer of sales per outlet, continued to fall.
The man defending the market share is N. G. Kannan, companys director for marketing. He feels that the next two years will be crucial for the company. We will have to defend our volumes in markets that we have ruled for years. The only way to do this is by increasing customer captivity and loyalty, he added.
The company plans to spend about Rs 2,350 crore in 06-07 to increase its marketing efforts. This will include measures to upgrade retail outlets and put up more infrastructure, like terminals that will improve its reach. In 05-06, Indian Oils net under recovery was about Rs 5,000 crore, even after taking into account government subsidies, oil bonds and cross-subsidy payments by upstream oil companies. Despite incurring losses in two out of the past three quarters, the company expects to end the year with a profit.
The government has frozen the pump prices of petrol and diesel and is unlikely to revise them in view of elections in various states. The losses on kerosene are currently 
14.17 per liter. On every cylinder of LPG sold, IOC loses 199. However, the public sector companies also face a lot of flak for putting up petrol outlets irrespective of the returns. IOC put up a record 1,547 petrol stations during the year. The new pumps take up the IOC network to 15,247 pumps, over 50 percent of the total Indian fuel retail business. However, analysts say there are already too many pumps and not enough fuel sales.
For much of the past year margins on major petroleum products like diesel, petrol, LPG and kerosene have been negative. Besides retail, the other big push for IOC has been a plunge into petrochemicals. The company is putting up a naphtha cracker, which includes an integrated paraxylene and PTA plant at Panipat. Apart from this, the board has also cleared the proposal of a scaled-up project at Paradip. Initially, the plan was to set up a 9 mt refinery. But the project will now be a refinery-cum-petrochemicals project with an annual capacity of 15 m tons.
But the IOC has big plans for is upstream in the oil and gas exploration and production business. The company has already won eleven exploration blocks, most of which it is prospecting with Oil India. It also has two blocks in Libya. IOC has also announced plans to acquire a medium sized global oil company, however no acquisition has been made yet. Pressures on domestic margins are expected to make such buyouts even more difficult going forward, experts say.
Another area of concern is that the company has been losing many senior level managers to rival oil companies. Industry sources state this has created a manpower vacuum at senior levels despite its giant workforce of 30,000 people.
14.17 per liter. On every cylinder of LPG sold, IOC loses 199. However, the public sector companies also face a lot of flak for putting up petrol outlets irrespective of the returns. IOC put up a record 1,547 petrol stations during the year. The new pumps take up the IOC network to 15,247 pumps, over 50 percent of the total Indian fuel retail business. However, analysts say there are already too many pumps and not enough fuel sales.
For much of the past year margins on major petroleum products like diesel, petrol, LPG and kerosene have been negative. Besides retail, the other big push for IOC has been a plunge into petrochemicals. The company is putting up a naphtha cracker, which includes an integrated paraxylene and PTA plant at Panipat. Apart from this, the board has also cleared the proposal of a scaled-up project at Paradip. Initially, the plan was to set up a 9 mt refinery. But the project will now be a refinery-cum-petrochemicals project with an annual capacity of 15 m tons.
But the IOC has big plans for is upstream in the oil and gas exploration and production business. The company has already won eleven exploration blocks, most of which it is prospecting with Oil India. It also has two blocks in Libya. IOC has also announced plans to acquire a medium sized global oil company, however no acquisition has been made yet. Pressures on domestic margins are expected to make such buyouts even more difficult going forward, experts say.
Another area of concern is that the company has been losing many senior level managers to rival oil companies. Industry sources state this has created a manpower vacuum at senior levels despite its giant workforce of 30,000 people.