Expansion of petrol pumps in India

Why in news?

State-controlled oil-marketing companies intend to double their retail networks and will shortly allot petrol pump licences across the country.

What is the rationale behind the move?

Though the demand for petrol and diesel at the pump has been growing steadily, no new licences have been issued for the last four years.
With the expansion and improvement of the road network and growing prosperity, previously under-connected geographical areas have seen an increasing demand for fuel.
These under-served areas need to be given access to petrol pumps.
Thus the move will ensure –

What are the changes made in the guidelines?

The new eligibility guidelines have scrapped the applicants’ fund requirements and relax rules on land ownership.
Previously, applicants were required to possess Rs 25 lakh in bank deposits or other financial instruments for regular outlets and Rs 12 lakh for rural outlets.
Under the new rule, people with no land or a firm tie-up with landowner will also be allowed to apply for the dealership.
The winner among applicants will be picked by online draw of lots, after which the credentials will be verified subject to the candidate depositing 10% of the security deposit.
The application process has also been made simpler, and can now be filed online.
The requirements for allotment have been relaxed, wherein passing the Class 12 exam is no longer required.
The distribution of licences will be supervised by an independent agency.
Also, the government reservation norms for disadvantaged sections of the society should be followed, subjected to the operational flexibility of companies in appointments.

What are the concerns?

Increases monopoly - Large-scale expansion by government fuel retailers would increase their market dominance.
India has 62,585 petrol pumps, out of which only 6,000 are run by private companies.
The move could force private companies to rethink expansion plan at a time when the government is trying to attract investments in the sector.
Reducing demand - The average sale of existing outlets has already dropped from 170 Kl (kilolitre) to 140, while the costs are rising and margins are shrinking.
This questions the need for new outlets and also the financial viability to run them in the future.
Shift in focus - Massive expansion plan shows that state companies are little worried about the rise of electric vehicles, which will affect the government’s focus on renewable energy sector.
Land Acquisition – Though applicants without land at the advertised location/stretch can also apply under the new guidelines, availability and acquiring of suitable land is still the biggest concern.

What should be done?

To obtain a fuel retailing license in India, a company needs to invest Rs 2,000 crore in either hydrocarbon exploration and production, refining, pipelines or liquefied natural gas (LNG) terminals.
Thus, an expert committee has been set up recently to recommend relaxing norms for setting up petrol pumps and retailing ATF in India.
Along with that, the government could make sure that more petrol pumps are being added along the new highways.
Allotments should be made according to a clearly defined schedule and with the economic and commercial justifications clearly laid out each time.
This will improve public faith in the independence of the oil-marketing companies.

Source: Business Standard, Economic Times