Reliance Industries is planning to form a joint venture with another oil marketing firm to operate its existing 1,400 odd petrol retail outlets in the country. Public sector firm IOC, which is the largest fuel retailer in the country (running more than half of all fuel outlets), and Royal Dutch Shell are believed to be the front-runners to pick around 50% stake in the new venture, The Economic Times reported.
Most of these outlets are located on the lucrative Golden Quadrilateral road network on the country’s East-West corridor, where fuel sales are higher. Besides the pumps these also have significant land banks which were meant to house hotels, food courts and other commercially exploitable facilities.
Reliance’s fuel retail business has been making losses after it was forced to shut operations last year after when galloping crude oil prices made it unviable to compete against PSU retailers. While cost shot up for Reliance it couldn’t compete with PSU fuel retailers who sold fuel at government dictated lower prices to contain inflation in the economy.
Although there was speculation that Reliance may exit the business altogether, for now it is looking at alternate options to revive the business in which it has already invested around $1.4 billion. Moreover, the network of outlets will also help when it sells compressed natural gas in the future. The company continues to make losses in the business due to its committed returns for investments of the franchisees who were roped in to run the outlets.
Reliance has invited bids from a group of Indian and overseas companies including IOC, Shell, BPCL and HPCL, and is open to bring down its holding to as low as 49% giving the strategic partner a majority stake in the venture.
One straight benefit would come from hiving off the assets to a new separate venture as it would then be able to transfer accumulated losses out of its own books.
Reliance had earlier brought in Chevron as an international strategic investor in Reliance Petroleum (which is now being merged with the parent firm). But this partnership was short-lived. A venture with Shell could help Reliance to sell its refined products in overseas markets while also giving a ready base for Shell to sell fuel in India along with access to a large domestic refinery. Shell has a marginal presence in South India currently and buys most of its fuel from MRPL, a subsidiary of state-run oil company ONGC.
Meanwhile, according to media reports, Reliance is also in talks to source petroleum products from Essar Oil’s refinery in Vadinar (Gujarat) to restart its retail outlets specially those in Gujarat and Maharashtra. Although Reliance has its own refineries at Jamnagar, they are export oriented.