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CHAPTER-1

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INTRODUCTION TO THE SUBJECT:

1.1 Theoretical Foundation:

Petroleum Retailing in India

Indian retail business is the fastest growing business in India. It accounts for over 13% ofcountrys G.D.P.and around 10% of the countrys employment. Indian petroleum retail sectoris fastest growing sector with a contribution of over 13% in countrys G.D.P. The petroleumretailing industry in India faces significant challenges in the deregulated environmentcoupled with intense competition, a downward pressure is exerted on margins forcing playersto adopt new and innovative strategies.India has deregulated the pricing mechanism for retail petroleum in 2002, enabling new

players to enter into the market.The entry of new players like Reliance has increased the no.of petrol stations from existing15000 to more than 30000 in the past five years.This will also reduce the average throughput per station, and total fuel volumes per player.With a market determined pricing mechanism, prices will have to be lowered, thus reducingmargins from fuel products. With limited growth in the number of vehicles, the retail fuelvolumes will remain stagnant, thus offering little scope for further improving the overallrevenues and margins.

Indian retail industry.The petro-retail Petroleum retailing is a retailing in which differentiation is possible both in

service and product. India has close to 13 million retail outlets-the highest in the world whilethe retail industry is close to Rs.9 lakh crore, growing at 20 percent but organized retail isonly 2.5 percent of the pie, through growing at a healty rate of 35 percent. the downstreampetroleum retailing cansector can be termed as one of the most organized sector of the retail industry. Now, it is notall about offering fuel only at the petrol stations. The new look petrol pumps, apart fromdispensing fuels, now offer the best of retail chains providing a value added service to busyconsumers. This trend is in circulation in the international markets and the big petrol stationconvenience stores earn more than30 to 40 per cent of their profits from the non-fuelactivities. The range of value added services is all beneath one roof. The new-look petrolpumps are now the more advanced multi-purpose dispenser petrol-pumps.

The petrol pumps are computerized, thus reducing waiting time which not only ensuresaccuracy, but also saves a lot of time for customers and avoids misconception and arguments.But the history of petro retailing is not of same kind. In order to study the history of petro-retailing era can beclassified into two eras.

Pro APM( Administrative Pricing Mechanism) era

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Post APM era

Indian Petro-Retail Sector- Pro APM EraThe development of petrol-retail sector in India has witnessed three distinct phases:a) Period of dominance of multinational companies

b) Advent of public sector, its growth in co-existence with these transnational companies.c) Marketing by the wholly government-owned companies and the fulfillment of socio-economic objectives.At the time of independence, the marketing & retailing of petroleum products was in thehands of private companies like Caltex, Esso, Shell etc. Later the government graduallyexercised control through public sector companies.

The second phase started with actions taken in pursuance of the Industrial Policy Resolution,1956 to promote growth of the vital petroleum sector under the state control. Eventually, IOCwas formed in 1959, IBP was acquired in 1970, HPC came into existence in 1974 and BPC in1976.

In the third phase, the experience gained by the government during the second phase and thesocio-economic factors encouraged it to go ahead for acquiring the assets ofall multinationalcompanies operating in the country. In 1981, the entire oil industrywas truly in thegovernment fold.

A new era of planned development in consonance with national priorities under the overalldirection of the government thus began in the oil sector. From the state of cut-throatcompetition in marketing and distribution, the PSUs had to quickly adapt to the changedscenario. The assets of oil companies in terms of infrastructure facilities were now thenational assets. The important area of concern was their optimum utilization.

Administrative Pricing Mechanism in Petro Retailing:

Up to 1939, there were no controls whatsoever on the pricing of petroleum products.Between 1939 and 1948, the oil companies themselves maintained pool accounts formajorproducts without any intervention by the government. In 1948, an attempt was made toregulate prices through Valued Stock account procedure. Under this procedure realization ofoil companies was restricted to the import parity price of finished goods (with Ras Tanura asthe basing point), plus excise duties/ local taxes/ dealer margins and agreed marketingmargins of each of the refineries. Any excess realization was surrendered to the Government.

In 1976, the Oil Pricing Committee (OPC) recommended the discontinuance of the importparity principle on the ground that about 90% of the total demand of POL products was metby indigenous production and no major shortfall was anticipated. The OPC thereforesuggested that the domestic cost of production should be the determining factor for pricing ofpetroleum products. The present day APM was evolved on the recommendation of the OPCand came into existence on December 16, 1977.

One of the important drawbacks of the import parity pricing was that the indigenous cost ofproduction was totally overlooked while determining producer prices. This issue was

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addressed through Retention Pricing Mechanism, by which refiners were allowed to "retain"out of the sale proceeds. The same mechanism was extended to marketing & distributioncompanies as well. The Government of India also fixed the pricing of finished products andthe returns of oil companies were de-linked from the price at which the goods were finallysold. With the administration of pricing of products by the government, the retention

mechanism also came to be known as the Administrated Pricing Mechanism or APM.

The APM, although effective for two decades, started exhibiting cracks when subjected to thejoint pressures of spiraling demand and global prices;oil pool deficit rose to alarminglevels,cross subsidization resulted in distortion in the consumer prices, adulteration andmisuse of subsidies resulted were rampant, there was no incentive to improve efficiency withassured returns. In such situation, the Govt. of India initiated a phases era of reforms in theoil industry by forming different committees like the Sundarajan Committee in 1995, the R-group and the Nirmal Singh Committee. Based on the recommendation of these committees,on September 1, 1997, Govt.of India decided on a comprehensive package to undertakePhased dismantling of APM. In a gazette notification dated November 21, 1997, the Govt.of

India issued a timetable for the phased reforms.Pursuant to the decisions contained in the aforesaid resolution of November, 1997 thegovernment decided to dismantle the APM in the petroleum sector with effect from the April1,2002.

Liberalisation in Marketing Sector:Keeping its promise of decontrolling pricing and control over marketing structures, theGovernment of India on April 1, 2002, opened up retail marketing of automotivetransportationfuels (petrol, diesel) to private and foreign companies with 100% FDI allowed. This markedthe end of an era in which only state owned HPCL, BPCL, IOC and IBP were allowed toundertake retail marketing in automotive fuels. Based on the recommendation of the NareshNarad Committee on regulation of marketing of controlled products, players who satisfy theentry criterion i.e.companies which have the capabilities to invest Rs.20 billion in oilexploration and production,refining pipelines or terminals were allowed to set up retailnetwork for marketing petrol and diesel with immediate effect. Also, new players can set up anumber of outlets as long as they commit to set up certain 11% of total number of outlets inremote and low service areas.

The New Players in Petro-Retail Sector:

The deregulation of the marketing sector has led to the grant of marketing rights to RelianceIndustries (5,849), Essar Oil (1,700), ONGC (1,500), and Shell (2,000).Anticipating the immense competition ahead in the petro-retailing the existing oil marketingcompanies has geared up and the following are the changes that have occurred in recent pastsince the deregulation of downstream oil industry. Shifting focus from the urban to highways and sub-urban areas. More communication with the customers in the media and onsite Building PFS, Club HP, Q&Q as a brand From fuel dispensing to multi product selling

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From commodity selling to brand marketing From executive level sales management to intermediary supervisory cadres From direct controls to third party audits these certifying agencies require their owninfrastructure From dealer proprietor to reputed companies from other sectors making forays into petro-

retail management

Given today's open & competitive environment, oil marketing companies, both existing andnew entrants, are going full steam ahead to capture the largest share of the pie. While thePSUs have added more than 3000 retail outlets to their network in last three years sincederegulation, the private players have added only a little over 450 retail outlets. However, wecan say that with 30,000 petrol retail outlets expected in the next 5 years, up by 30% fromtoday, there is going to be a downward pressure on profit margins and revenue per outletwhich will push the industry to reinvent itself.

This is the foundation of the Indian petroleum industry. Thing is that Indian as well as all

other economies are connected to each other. Whatever happens in one economy it results inchange in the scenario of other economies. It is called coupling of economies. Thing is thatpresently the factors that are causing a change in the oil prices are being discussed below

Global Demand:

This surge in oil prices is because of increase in demand from developing countries likeIndia and China. The global consumption went up by 4.5% last year. Most of demand hascome from China. Last year Chinas demand grown by almost 15%. Although demandhasnt increased up to that level in this year, but as the China go on progressing it will resultin increase in transportation and hence its demand for oil will also rise.As China is a net

importing country for oil it will add to worlds demand for oil.The biggest reason forincrease in the oil prices is United states of America which consumes about one fourth of theglobal fuel. The oil efficiency of vehicles in the US has now fallen to a 20-year low. Itsenergy policy does very little to ensure greater fuel economy in cars or sports utility vehicles.Further, as developing countries keep improving their standards of living and automobilesremain a symbol of aspiration, there is only one way where the oil price is headed: upwards.Also what needs to be understood is the link between and interest rates. Interest rates theworld over have been very low and this, in turn, has led to increased consumption.

This, in turn, has led to an increased demand for oil and thus the increase in oil price. If theoil prices are high because of high demand they will stay there for much longer.This was notthe case when the world went through supply-led oil shocks, where once the supplies wererestored fell.

Political instability:

Most of the known oil reserves are in one part of the world, i.e. West Asia (or the MiddleEast). The other major petroleum exporting countries are Russia, Nigeria, Indonesia and

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Venezuela. These countries have been politically unstable in the recent past and this has alsoled to the oil traders demanding a premium.

Speculation:

Another reason for the northward movement of oil price is speculation. Some experts haverecently talked about oil prices touching even a high of $150. If something like this doeshappen, it will create havoc in the equity markets. As oil price go up, energy costs will riseand the cost of doing business will go up. This, in turn, will affect the profit of companies. Sobig equity funds the world over are investing in oil futures to hedge against the risk of thevalue of their other investments falling.Pension funds have also made a beeline and havepoured in a lot of money into securitized investments in This has led to sustained high pricesof oil. The fact that OPEC has reiterated time and again that it will not allow prices to fall hashelped these speculators.

1.2 REVIEW OF LITERATURE:

1. FICCI (2007): According to FICCI survey on fuel retailing industry in India , theyconcluded that the rising rate of growth of GDP, rising purchasing power of people withhigher propensity to consume with preference for sophisticated brands would provideconstant impetus to growth of petroleum industry. As people will have huge amount ofmoney to buy their own vehicles. So as per as FICCI automobile sector will emerge as thefront running sector in India. There is a very good chance for Indian fuel retailing sector togain big hold in the market. The potential market will be rural one which is still beinguntapped. Rural India which constitutes about 70% part of India will drive the major chunkof income of oil companies. So they need to concentrate on Indian rural market.

2. Mckinsey (2006): The Indian market for transportation fuels holds a lot of promise. The

countrys aspiring middle class, recently estimated at 40 million households by consultancyMcKinsey, is becoming increasingly motorised. Small towns are expanding at a rapid pace,sparking investment in roads and other infrastructure. The largest express highway project inIndia, for example, aims to link the cities of New Delhi, Mumbai, Kolkata and Chennai witha system of four- to six-lane highways. Automobile sales, which today number just over amillion vehicles a year, could reach 20 million a year by 2030, predicts US-basedconsultancy Keystone, making India the third-largest automobile market in the world afterChina and the USA. Moreover, the fact that many of Indias service stations are poorlydesigned and congested leaves a natural opening for newcomers who offer a betteralternative. Typical old-fashioned Indian service stations feature long queues, cars jockeyingfor position, oily forecourts and hand-operated petrol pumps that may not accurately measure

the volume of each sale.

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CHAPTER-2

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2.1 INTRODUCTION TO TRTHE INDUSTRY

The oil industry can be divided into three major components: upstream, midstream anddownstream. The upstream industry includes exploration and production activities, hence isalso referred as the exploration and production (E&P) sector. The middle stream industry

processes, stores, markets and transports commodities including crude oil, natural gas,natural gas liquids (NGLs) like ethane propane and butane and sulphur. The downstreamindustry includes oil refineries, petrochemical plants, petroleum products distributors, retailoutlets and natural gas distribution companies. The downstream industry provides consumersthousands of products such as gasoline, diesel, jet fuel, heating oil, asphalt, lubricants,synthetic rubber, plastics, fertilizers, antifreeze, pesticides, pharmaceuticals, natural gas andpropane. Both internationally and within India the oil and gas sector is characterized byexistence of "integrated" companies, which are present in all these three sectors.

Upstream sector: Exploration and production

Upstream sector, the first part of the oil and gas industry, deals with exploration andproduction of oil and gas. Oil exploration takes place at oil wells in four stages. The firststage is drilling, act of boring a hole through which oil or gas may be produced ifencountered in commercial quantities. The second stage is completion, process in which thewell is enabled to produce oil or gas. The third stage is production, production time of oil andgas and the final stage is abandonment, where the well no longer produces or produces sopoorly that it is a liability to its owner and is abandoned. An oil field is a region with anabundance of oil wells extracting petroleum (oil) from below ground. Because the oilreservoirs typically extend over a large area, possibly several hundred kilometres across, fullexploitation entails multiple wells scattered across the area. There are more than 40,000 oil

and gas fields of all sizes in the world (BP statistical Review, 2006) and the largestdiscovered conventional oil field is the Ghawar Field (75-83 billion) is Saudi Arabia. Intandem with the stagnated reserves, the production of oil has also been sluggish over the lastdecade, as a matter of fact in last ten years oil production has increased by only 1.6%.

Downstream: Refining and marketing

Refining, the second part of the oil industry after exploration and production, is related withmanufacturing petroleum products by a series of processes that separate crude oil into itsmajor components and blend or convert these components into a wide range of finished products, such as gasoline or Aviation Turbine Fuel. Refining capacity depends on the

technology used in refineries, capable of processing crude production into clean fuels. In therecent age of decreasing oil production refining capacity have to have well supportivetechnology, which meet increasingly more stringent environmental Standards. With theincrease in global oil demand and stagnant reserve, refining capacity deserves new capacityaddition to meet demand. But the graph shows slightly increasing trend of refining capacitytill date in last decade. Refinery throuput, as opposed to designed capacity, is computed bydividing the number of refined barrels of oil processed by the actual number of days therefinery was in operation. Refined capacity is lower than refined throuput in the graph below

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implying underutilisation of capabilty of processing crude in the existing refineries and lackof upgradation.

2.1a) HISTORY AND GROWDTH OF INDIAN OIL INDUSTRY:

The origin of oil & gas industry in India can be traced back to 1867 when oil was struck atMakum near Margherita in Assam. At the time of independence in 1947, the Oil & Gasindustry was controlled by international companies. India's domestic oil production was just250,000 tonnes per annum and the entire production was from one state - Assam.

The foundation of the Oil & Gas Industry in India was laid by the Industrial PolicyResolution, 1954, when the government announced that petroleum would be the core sectorindustry. In pursuance of the Industrial Policy Resolution, 1954, Government-ownedNational Oil Companies ONGC (Oil & Natural Gas Commission), IOC (Indian OilCorporation), and OIL (Oil India Ltd.) were formed. ONGC was formed as a Directorate in1955, and became a Commission in 1956. In 1958, Indian Refineries Ltd, a government

company was set up. In 1959, for marketing of petroleum products, the government set upanother company called Indian Refineries Ltd. In 1964, Indian Refineries Ltd was mergedwith Indian Oil Company Ltd. to form Indian Oil Corporation Ltd.

During 1960s, a number of oil and gas-bearing structures were discovered by ONGC inGujarat and Assam. Discovery of oil in significant quantities in Bombay High in February,1974 opened up new avenues of oil exploration in offshore areas. During 1970s and till mid1980s exploratory efforts by ONGC and OIL India yielded discoveries of oil and gas in anumber of structures in Bassein, Tapti, Krishna-Godavari-Cauvery basins, Cachar (Assam),Nagaland, and Tripura. In 1984-85, India achieved a self-sufficiency level of 70% inpetroleum products.

In 1984, Gas Authority of India Ltd. (GAIL) was set up to look after transportation,processing and marketing of natural gas and natural gas liquids. GAIL has been instrumentalin the laying of a 1700 km-long gas pipeline (HBJ pipeline) from Hazira in Gujarat toJagdishpur in Uttar Pradesh, passing through Rajasthan and Madhya Pradesh.

After Independence, India also made significant additions to its refining capacity. In the firstdecade after independence, three coastal refineries were established by multinational oilcompanies operating in India at that time. These included refineries by Burma Shell, andEsso Stanvac at Mumbai, and by Caltex at Visakhapatnam. Today, there are a total of 18refineries in the country comprising 17 in the Public Sector, one in the private sector. The 17Public sector refineries are located at Guwahati, Barauni, Koyali, Haldia, Mathura, Digboi,Panipat, Vishakapatnam, Chennai, Nagapatinam, Kochi, Bongaigaon, Numaligarh,Mangalore, Tatipaka, and two refineries in Mumbai. The private sector refinery built byReliance Petroleum Ltd is in Jamnagar. It is the biggest oil refinery in Asia.

By the end of 1980s, the petroleum sector was in the doldrums. Oil production had begun todecline whereas there was a steady increase in consumption and domestic oil production wasable to meet only about 35% of the domestic requirement. The situation was further

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rcompounded by the resource crunch in early 1990s. The Government had no money for thedevelopment of some of the then newly discovered fields (Gandhar, Heera Phase-II and III,Neelam, Ravva, Panna, Mukta, Tapti, Lakwa Phase-II, Geleki, Bombay High FinalDevelopment schemes etc. This forced the Government to go for the petroleum sectorreforms which had become inevitable if India had to attract funds and technology from

abroad into the petroleum sector.

The government in order to increase exploration activity, approved the New ExplorationLicensing Policy (NELP) in March 1997 to ensure level playing field in the upstream sectorbetween private and public sector companies in all fiscal, financial and contractual matters.This ensured there was no mandatory state participation through ONGC/OIL nor there wasany carried interest of the government.For this India finally formulated New Exploration Licensing Policy in 1999.After that IndianGovernment has come up with six more NELP Policies. These are as listed below a) 2000-NELP IIb) 2002- NELP III

c) 2003- NELP IVd) 2004- NELP Ve) 2006- NELP VIf) 2007- NELP VII

To meet its growing petroleum demand, India is investing heavily in oil fields abroad. India'sstate-owned oil firms already have stakes in oil and gas fields in Russia, Sudan, Iraq, Libya,Egypt, Qatar, Ivory Coast, Australia, Vietnam and Myanmar. Oil and Gas Industry has a vitalrole to play in India's energy security and if India has to sustain its high economic growthrate.

2.1b) Landmark of Indian oil industry:

The Indian Oil and Gas sector is one of the six core industries in India and has verysignificant forward linkages with the entire economy. The oil & gas sector meets more thantwo third of the total primary energy needs in the country. The sector has been instrumentalin putting India on the world map. At present India is the sixth largest crude oil consumer inthe world and the ninth largest crude oil importer. The country is also increasing its share inthe global refining market. At present Indian refining sector is the sixth largest in the world.This position is expected to be strengthened with plans of Reliance Petroleum Limited tocommission another refinery with a capacity of 29 MTPA next to its 33 MTPA refinery atJamanagar, Gujarat. As a result of this the Reliance refinery would be worlds largest singleplace refinery.

2.1 c)List of Companies in indian petroleum retailing sector :

1. IOC

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2.HPCL

3. BPCL

4. RELIANCE

5.ESSAR

6. SHELL

2.1 d) Major players in India fuel retailing business:

IOC:

Indian Oil Corporation Ltd. (IOC) is the flagship national oil company in the downstreamsector. The IndianOil Group of companies owns and operates 10 of India's 19 refineries witha combined refining capacity of 1.2 million barrels per day. These include two refineries ofsubsidiary Chennai Petroleum Corporation Ltd. (CPCL) and one of Bongaigaon Refinery andPetrochemicals Limited (BRPL). The 10 refineries are located at Guwahati, Barauni, Koyali,Haldia, Mathura, Digboi, Panipat, Chennai, Narimanam, and Bongaigaon. Indian Oil's cross-country crude oil and product pipelines network span over 9,300 km. It operates the largestand the widest network of petrol & diesel stations in the country, numbering around 16,455.

Indian Oil Corporation Ltd. (IndianOil) was formed in 1964 through the merger of Indian OilCompany Ltd and Indian Refineries Ltd. Indian Refineries Ltd was formed in 1958, with

Feroze Gandhi as Chairman and Indian Oil Company Ltd. was established on 30th June 1959with Mr. S. Nijalingappa as the first Chairman. In 1964, Indian Oil commissioned BarauniRefinery and the first petroleum product pipeline from Guwahati. In 1965, Gujarat Refinerywas inaugurated. In 1967, Haldia Baraurii Pipeline (HBPL) was commissioned. In 1972,Indian Oil launched SERVO, the first indigenous lubricant. In 1974, Indian Oil Blending Ltd.(IOBL) became the wholly owned subsidiary of Indian Oil. In 1975, Haldia Refinery wascommissioned. In 1981, Digboi Refinery and Assam Oil Company's (AOC) marketingoperations came under the control of Indian Oil. In 1982, Mathura Refinery and Mathura-Jalandhar Pipeline (MJPL) were commissioned. In 1994, India's First Hydrocracker Unit wascommissioned at Gujarat Refinery. In 1995, 1,443 km. long Kandla-Bhatinda Pipeline(KBPL) was commissioned at Sanganer. In 1998, Panipat Refinery was commissioned. In the

same year, Haldia, Barauni Crude Oil Pipeline (HBCPL) was completed. In 2000, Indian Oilcrossed the turnover of Rs l, 00,000 crore and became the first Corporate in India to do so. Inthe same year Indian Oil entered into Exploration & Production (E&P) with the award of twoexploration blocks to Indian Oil and ONGC consortium under NELP-I. In 2003, Lanka IOCPvt. Ltd. (LIOC) was launched in Sri Lanka. In 2005, Indian Oil's Mathura Refinery becamethe first refinery in India to attain the capability of producing entire quantity of Euro-IIIcompliant diesel.

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Major Achievements of Indian Oil Corporation

Currently India's largest company by sales.

Highest ranked Indian company in the prestigious Fortune 'Global 500' listing, at135th position. 20th largest petroleum company in the world.

HPCL:

HPCL is a fortune 500 company , with an annual turnover of over Rs 1,03,837Crores($25,142 Millions) during FY 2007-08, 16% Refining & Marketing share in India and a strongmarket infrastructure. Corresponding figures for FY 2006-07 are: Rs 91,448 crores ($20,892

Million).

The Corporation operates 2 major refineries producing a wide variety of petroleum fuels &specialties, one in Mumbai (West Coast) of 5.5 MMTPAcapacity and the other inVishakapatnam, (East Coast) with a capacity of 7.5 MMTPA. HPCL holds an equity stake of16.95% in Mangalore Refinery & Petrochemicals Limited, a state-of-the-art refinery atMangalore with a capacity of 9 MMTPA. In addition, HPCL is progressing towards settingup of a refinery in the state of Punjab in the joint sector.

HPCL also owns and operates the largest Lube Refineryin the country producing Lube BaseOils of international standards. With a capacity of 335 TMT. This Lube Refinery accounts for

over 40%of the India's total Lube Base Oil production.

The vast marketing network of the Corporation consists of Zonal offices in the 4 metro citiesand over 85 Regional offices facilitated by a Supply & Distribution infrastructure comprisingTerminals, Aviation Service Stations, LPG Bottling Plants, and Inland Relay Depots & RetailOutlets. The Corporation over the years has moved from strength to strength on all fronts.Our refining capacity steadily increased from 5.5 million tonnes in 1984/85 to 13.70 millionmetric tonnes (MMT) presently. On the financial front, the turnover grew from Rs. 2687crores in 1984-85 to an impressive Rs 91,448 crores in FY 2006-07 and Rs 1,03,837 Croresin FY 2007-08.

BPCL:

The 1860s saw vast industrial development. A lot of petroleum refineries also came up. Animportant player in the South Asian market then was the Burmah Oil Company. Thoughincorporated in Scotland in 1886, the company grew out of the enterprises of the RangoonOil Company, which had been formed in 1871 to refine crude oil produced from primitivehand dug wells in Upper Burma.. The search for oil in India began in 1886, when Mr.

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Goodenough of McKillop Stewart Company drilled a well near Jaypore in upper Assam andstruck oil. In 1889, the Assam Railway and Trading Company (ARTC) struck oil at Digboimarking the beginning of oil production in India.

While discoveries were made and industries expanded, John D Rockefeller together with his

business associates acquired control over numerous refineries and pipelines to later form thegiant Standard Oil Trust. The largest rivals of Standard Oil - Royal Dutch, Shell, Rothschilds- came together to form a single organisation: Asiatic Petroleum to market petroleumproducts in South Asia. In 1928, Asiatic Petroleum (India) joined hands with Burmah OilCompany - an active producer, refiner and distributor of petroleum products, particularly inIndian and Burmese markets. This alliance led to the formation of Burmah-Shell Oil Storageand Distributing Company of India Limited.

A pioneer in more ways than one, Burmah Shell began its operations with import andmarketing of Kerosene. This was imported in bulk and transported in 4 gallon and 1 gallontins through rail, road and country craft all over India. The company took up the challenge of

reaching out to the people even in the remote villages to ensure every home had its supply ofkerosene. The development and promotion of efficient kerosene-burning appliances forlighting and cooking was an important part of kerosene selling activity. With motor cars,came canned Petrol, followed by service stations. In the 1930s, retail sales points were builtwith driveways set back from the road; service stations began to appear and became acceptedas a part of road development. After the war Burmah Shell established efficient and up-to-date service and filling stations to give the customers the highest possible standard of servicefacilities.

On 15th October 1932, when civil aviation arrived in India, the company had the honour offuelling J.R.D. Tata's historic solo flight in a single engined de Havillian Puss Moth from

Karachi to Bombay (Juhu) via Ahmedabad. Thirty years later, i.e. in 1962, Burmah Shellagain had the privilege to fuel JRD Tata's re-enactment of the original flight. Burmah Shellalso fuelled flying boats, which carried airmail at slightly higher rates than sea transport, atseveral locations. As a true pioneer would, the company introduced LPG as a cooking fuel tothe Indian home in the mid-1950s. And all along, it went beyond selling petroleum, toeducate the customer. Besides selling Bitumen, the company pioneered desert roadconstruction, training road engineers. It provided free technical services to industrialcustomers - big and small - and it became a part of the company's culture. An agreement to build a modern refinery at Trombay, Bo Burmah Shell group of companies and theGovernment of India on 15th December 1951.

Burmah Shell Refineries Limited was incorporated as a private limited company under theIndian Companies Act on 3rd November 1952, and work began on the marshland of Trombayat Bombay. Man and machine worked relentlessly, and soon the swamps gave way to towersand tanks of steel, and miles of pipeline. .

The refinery on 454 acres of land at village Mahul went on-stream on 30th January 1955, oneyear ahead of schedule. Dr. S. Radakrishnan, Vice President of India, declared the 2.2MMTPA (Million Metric Tonnes Per Annum) Refinery open on 17th March 1955. It was

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sthen the largest refinery in India then. On 24th January 1976, the Burmah Shell Group ofCompanies was taken over by the Government of India to form Bharat Refineries Limited.On 1st August 1977, it was renamed Bharat Petroleum Corporation Limited. It was also thefirst refinery to process newly found indigenous crude (Bombay High), in the country.

Beside these players from Public sector some private players are also actively participating inIndian petroleum industry.These are viz.Reliance industries Ltd.(RIL), Shell India Ltd. andEssar. But they failed to live upto their expectations. This is because they arent compensatedby Government for their revenue losses as in the case of PSUS.Due to this Reliance recentlydecided to close one third of its retail outlets in India because of heavy losses. But Shellwhich has nearly 1260 retail outlets in India and operates a very small number of outlets inSouth India isnt closing its operations. On the other hand Essar is following franchisesdistribution to cope up in this environment. Indias biggest refinery is being operated by RILin Jamnagar. When in 2002 Government of India dismantled APM then with its entry in theretailing business Reliance grabbed market share of 14.69% within a year.

2.1 e) Market share of different fuel retailing companies in India :

As explained earlier the major player in the petroleum retailing business are IOC,BPCL,HPCL,IBP,RIL,ESSAR,SHELL. To explain more let us consider the statistics of no.ofretail outlets of different OMCs in India.

Statistics of Total no. of Petroleum retail outlets for different OMCs in India:

Company name March-2007 December-2007 March-2008

PSUs

IOC 16,540 16,540 17,460BPCL 7,609 8,089 8,100

HPCL 7,909 8,060 8,080

Total 32,058 32,689 33,640

Private Player

RIL 898 1800 1,800

Essar 1,149 1,250 1,250

Shell 32 35 37

Others 2,079 3,035 3,042

Total 34,137 35,724 36682

Sources: Indian Oil and Gas and CRISIL Research

It is clear from the data that IOC is the biggest player with 17,460 retail outlets followed byBPCL with 8,100,HPCL with 8,080 and rest followed by private players. It is clear thatmajority of retail outlets are being operated by PSUS while private players are operatingvery few.This is because of the fact that prior to 2002 it was only public sector OMCs whichwere allowed to sell fuel in the market.

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But in 2002, government also allowed private players to set up their own retail outlets. Afterthis decision the private player started operating their retail outlets. But in all of these privateplayer Reliance was the only one which acquired the market share of 14.45% during its firstfiscal. It was because of tie of petroleum fueling with organized retail activities.Privateplayer added 1006 retail outlets during March-December 2007 and public sector could only

add 630 retail outlets.

Market share of OMCs in India:

Sources: Indian Oil and Gas and CRISIL Research

It is clear from the graph that IOC is the biggest player in the petroleum retailing business inIndia, followed by BPCL,HPCL and other private players. The statistics available upto 2007-08 suggest that IOC has a market share of 49%. While the share of other PSUs has alsoshown an increasing trend. While the share of the private player has decreased. This isbecause of the fact that they arent given the kind of subsidies and oil bonds issued as in caseof public sector oil companies.

When private players entered into retailing business market share of public sector companiescontinued to decline from 15.2%-19% during 2006-07. In the fiscal 2007-08 IOC has lost its

market share from 49%-40.36%. While BPCL has increased its market share from 21%-24.56%. While other gainers are Essar and Shell.

It is clear that IOC is still the biggest player in the market. It is trying hard to regain its lostshare.

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Market share of Petroleum Company in auto fuel sector:

%tageshare ofcompanies

MS HSD Total

April-Oct2006 April-Oct2007 April-Oct2006 April-Oct2007 April-Oct2006 April-Oct2007

IOC 42.70 42.55 52.88 52.69 47.79 47.62

BPCL 28.74 28.21 23.52 23.93 26.13 26.07

HPCL 23/69 23.87 18.36 18.96 21.03 21.41

RIL 4.31 3.75 4.47 3.27 4.39 3.51

ONGC 0 0 0.56 0.54 4.39 0.27

ESSAR 0.13 0.85 0.06 0.35 0.10 0.60

SHELL 0.41 0.78 0.14 0.26 0.28 0.50

100 100 100 100 100 100

Sources: Indian Oil and Gas and CRISIL Research:

These are the figures for sales of HSD and MS for different oil companies in Indian market.These are upto October 2007 indiacating that the share of private player has improved by asmall margin. Share of IOC has gone down, while HPCL has gained significant share ofBPCL and IOC. The entry of new private player in the petroleum industry has resulted in theloss of market share of public companies in the market. This is as shown

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It is clear from the figure that IOC, BPCLand RIL were the major companies which lostconsiderable market share in auto fuel sector. This was all because of rising oil prices. Theprices are also being determined on the basis of demand and supply.

Demand and Supply Scenario of Petroproducts:

There is always been a gap between supply and demand. This is the reason thats why oilprices shoot up and sales of retail outlets decreases.This can be seen from the graph givenbelow:

Sources: Bloomberg, Edelweiss Research:

According to a research carried out by Security Marketing Research agency Bloomberg(Bombay) it is going to be difficult for Indian government to get rid of this problem. As theirresearch clearly points out that in coming days the gap is going to widen more betweendemand and supply. All these results are being forecasted by considering all the aspects ofpresent scenario. The supply and demand gap is always been persistent for India.

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Prior to liberalization in petroleum industry there were very less no. of retail outlets. So thesales of retail outlets were good enough. In order to check the health of petrol pumps theparameter used is Per Pump Thruput (PPT). This can be seen from the PPT factor priorliberalization as shown by fig.1.

Sources: FICCI Petrotech, ATKERNEY January 18, 2007:

The value of PPT remained around 200 KIs/pm. Which is a good factor. As there were lesserno.of retail outlets so the financial health of retail outlets was good enough.

But as the government opened the petroleum industry for private players it resulted in

increase in entry of new players and after liberalization in petroleum sector large no. ofpetrol retail outlets were being opened by the private as well as public players. Afterliberalization the scenario changed and PPT value come down to below 200 as shown:

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Sources: FICCI Petrotech, ATKERNEY January 18, 2007

This decrease in PPT is because of the fact that as a company operates large no.of retailoutlets then sale of one retail outlet increases while that of other decreases. Then to counterthis their competitors also open their retail outlets. Due to this their sales fluctuates. Theirsale may increase but the overall sold volume of petroleum products remains same. Hence itresults in increase in sale of one of the outlets and decline in the sales of other outlets. Soincreasing no. of retail outlets is also another reason in the decline in the sales.

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Due to rising oil prices the public sector companies has to bear the losses. Andunderecoveries for the oil companies has increased. This is as shown below by the following

charts:

This is clear from the graph that there is increase in the underecoveries on the sale of autofuels. It is clear that under recovery for diesel is Rs.5/liter and Rs.3/liter for the sale ofpetrol. Government has done their level best in order to compensate for the under recoveriesof the oil companies. This is done by providing subsidies from upstream sector and issuingoil bonds.This is shown in the form of table as shown:

( Rs.million) 2005-06 2006-07 2007-08 2008-09 P

Subsidiesshared byupstream sector

140000 205000 208462 181365

Oil bonds byGovernment

115000 240500 244562 212773

Total 255000 445500 453024 394138

Sources: Indian Oil and Gas, CRISIL Research

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It is clear from table that the under recoveries has increased by greater proportion andgovernment has passed this burden to Indias upstream companies and also has shed thisburden itself. These subsidies and oil bonds are provided to public sector companies only not

to the private players .As a result of this Reliance shut down its petroleum operation in India.Instead of selling it in domestic market they have turned onto the export side. They aregetting better returns from export than selling it in domestic market. So there is a greatshuffle in Indian petroleum retailing industry.

2.1 f) Challenges ahead for Indian petro-retail sector:

a)No real Market Determined Pricing

Three years passed since APM was dismantled but still the promise of Government of indiato establish a regulatory board has not bore fruit and it seems that the government has madean April Fool* of all of us. Now its implication is that although APM is not in use in

theory, but in practical the petro-products price is still determined by the government.Consultation with the oil companies and the price competition has not happened yet. Aserious battle revolving around the pricing and related competition would potentially comeinto play only with the active involvement of the private sector in the marketing segment.

b)Cut-throat Competitive environmentWith the coming of the private players in the petro-retailing, the sector is destined to witnessimmense competition in the future. In the changed scenario, whosoever would be in thepossession of adequate infrastructure for transportation, storage and distribution will emergeas winner in due course of time. With this game plan in mind, the existing as well as privateoil companies are trying to strengthen their retail network continuously. However, the

government has taken enough steps to ensure that the new entrants could not have an easyroute to build a retail network. The government had specified that private companies couldnot poach on the outlets of state-owned oil companies for a period of five years starting 1April 2002.

Consumers increasing expectations

With growing competition in the petro-retailing sector, todays consumer is becoming more

and more demanding. The emergence of new psychographic segments in petro-retail market

bears the testimony to this fact. A closer look at these segments tells us what exactly a

Consumer is looking for whenever he goes to a fuel station to purchase fuel. He looks for-

Quality & Quantity assurance

Quick filling and efficient forecourt service

Rewarding loyalty

Premium fuels

Cashless transactions

Non-fuel services

c) Need to provide alternate sources for revenue

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One major challenge that the oil marketing companies are facing today is the need to provide

the alternate sources for revenue. Many factors have triggered this new event in todays petro-

retailing environment. These factors are-

Increased pressures on margins Desire to leverage real estate and increase revenues

Evolving customer segments like Value time saving propositions, Quality and

Environment consciousness, Prestige seeker etc.

Need to differentiate offerings

2.1 g) Future vision of petroleum industry:

a) Shift from retail outlet branding to corporate branding :

Ever since the market was deregulated, the oil companies are busy in bringing the branding

concept in petro-retailing which was a commodity market for years with no differentiation.

However, consistent efforts make them taste success with the advent of branded fuels such as

Speed, Xtrapremium etc. Also, at the same time RO branding was initiated and PFS (Pure

For Sure), Club HP and Q&Q outlets came into existence. But still the oil companies have not

found the way how to make a customer say pointing towards a RO that as this outlet belongs

to a particular company, it will be the best in Q&Q and others concerns. In other words,

corporate branding is what on the cards in the future of petro-retailing.

b)Offer of range of premium branded fuels :

Today, there are so many branded fuels of different oil companies in the market like Speed

(BPCL), Turbojet (HPCL) and Xtrapremium (IOCL) etc. But these fuels are more or less

same with slight variations in the chemistry. Also, there is a lack of product assortment in this

business of branded fuels. There is not much options to choose among. However, with high

investment in R&D, things are not going to remain same and very soon we will see a full

range of premium branded fuels like 93-octane petrol, 97-octane petrol, 125-octane petrol etc.

c)Emergence of non-fuel services as a major activity at retail outlets :

The dismantling of APM has removed the privilege of assured returns from the PSUs and

thus, it has increased pressure on their margins, as to compete with the private players, who

are with deep pockets, it is imperative to make huge investment in the services being offered

at the ROs. Since the base product is same, the differentiating factor would be the non-fuel

services. Also, the changing face of the Indian consumer is one of the main reasons behind

the non-fuel services in petro-retailing. Today, he is looking at a one stop solution to all his

needs buying groceries, withdrawing cash from his bank, making utility payments,

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renewing his insurance cover, grabbing a quick bite, obtaining Pollution Under Control

Certification and of course filling fuel in his car. On the other hand the driver on the

highways is seeking a clean and hygienic place to relax and freshen-up, service his vehicle

and have a good meal at the restaurant in the pump.

d)Loyalty programs an integral part:

The immense competition will make loyalty programs an integral program of the day-to-day

functioning of petro-retailing. Of course, right now many such loyalty programs are being run

by the petro-retailers like Smart Fleet (BPCL), Xtrapower(IOCL), Drivetrack (HPCL),

Transconnect (Reliance), Petrocard (BPCL) and others. However, these programs are mainly

focussed at the bulk consumers and the small consumers are left unnoticed more or less. But

in future, there wont be such differentiation and loyalty programs will be there for every

segment of consumers.

e)Attempt by all players to drive volumes to retail sites

In order to saturate the market before the private players can consolidate network, the PSUs

are vigorously setting up new outlets. In the last three years, the PSUs have added more than

3000 outlets to their network. However, it will reduce the throughput per RO in long run.

Hence in order to maintain the throughput, all players will strive to drive volumes to their

retail sites.

f)Leveraging automation and communication for enhanced offerings

In the wake of the increased customers expectation, in future, retailing of petroleumproducts

is going to be very sophisticated and highly modernized. In the pipeline, there is a slew of

automation infrastructure solutions ranging from integrated point of sale terminals,

aggregated data management system, fuel delivery management and fleet management

systems that help customer self-service, dynamic pricing, network planning, demand

forecasting and s

2.2 Profile of ONGC:

ONGC (Oil and Natural Gas Corporation Limited) is India's leading oil & gas exploration

company. ONGC has produced more than 600 million metric tonnes of crude oil andsupplied more than 200 billion cubic metres of gas since its inception. Today, ONGC isIndia's highest profit making corporate. It has a share of 77 percent in India's crude oilproduction and 81 per cent in India's natural gas production.

The origins of ONGC can be traced to the Industrial Policy Statement of 1948, which calledfor the development of petroleum industry in India. Until 1955, private oil companies such asAssam Oil Company at Digboi, Oil India Ltd (a 50% joint venture between Government of

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India and Burmah Oil Company) at Naharkatiya and Moran in Assam, and Indo-StanvacPetroleum project (a joint venture between Government of India and Standard Vacuum OilCompany of USA) at West Bengal, were engaged in exploration work. The vast sedimentarytract in other parts of India and adjoining offshore were largely unexplored. In 1955,Government of India decided to develop the oil and natural gas resources in the various

regions of the country as part of the Public Sector development. To achieve this objective anOil and Natural Gas Directorate was set up in1955, as a subordinate office under the thenMinistry of Natural Resources and Scientific Research.

The Industrial Policy Resolution of 1956 placed mineral oil industry among the schedule 'A'industries. In August 1956, to ensure efficient functioning of the Oil and Natural GasDirectorate, the Directorate was raised to the status of a commission with enhanced powers.In October 1959, the Commission was converted into a statutory body by an act of the IndianParliament, which enhanced powers of the commission further. In 1960s, ONGC found newresources in Assam and established new oil province in Cambay basin (Gujarat). In early1970s went offshore and discovered a giant oil field in the form of Bombay High. After

liberalization in 1991, ONGC was re-organized as a limited Company under the Company'sAct, 1956 in February 1994. Today, ONGC has grown into a full-fledged horizontallyintegrated petroleum company. Recently, ONGC has made six new discoveries, at Vasai West(oil and gas) in Western Offshore, GS-49 (gas) and GS-KW (oil and gas) in Krishna-Godavari Offshore, Chinnewala Tibba (gas) in Rajasthan, and Laipling-gaon (oil and gas)and Banamali (oil), both in Assam.

ONGC has a fully owned subsidiary, ONGC Videsh Ltd (OVL) that looks for explorationopportunities in other parts of the world. OVL is pursuing exploration of oil and gas inRussia, Iran, Iraq, Libya Myanmar and other countries. ONGC has also acquired 72% stakein MRPL with full management control of the 9.69 tonne, state-of-the-art refinery.

ORGANISATIONAL CHART

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2.3 History of ONGC:

During the pre-independence period, the Assam Oil Company and Attock Oil company innorthwestern part of the undivided India were the only oil companies producing oil in thecountry, with minimal exploration input. The major part of Indian sedimentary basins wasdeemed to be unfit for development of oil and gas resources.After independence, theNational Government realized the importance of oil and gas for rapid industrial developmentand its strategic role in defense. Consequently they laid great emphasis on development ofpetroleum industry in Industrial Policy Statement of 1948.All the major oil players werecarrying out exploration of hydrocarbon resources in India. In Assam, oil was being producedby the Assam Oil Company at Digboi and oil India was developing two newly discovered

large fields Naharkatiya and Moran in Assam. In other parts of the country exploration workwas on progress. The vast sedimentary tract in other parts of India and adjoining offshoreremained largely unexplored.

In 1955 ,Government of India decided to develop the oil and natural gas resources in variousregions of the country as part of the Public Sector development.With this objective, an oiland Natural Gas Directorate was set up towards the end of 1855, as a subordinate officeunder the Ministry of Natural Resources and Scientific Research. The department was

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constituted with geoscientists from the Geological survey of India. A delegation under theleadership of Mr. K.D. Malviya , Minister of Natural Resources, visited several Europeancountries to study the status of oil industry in those countries and to facilitate the training ofIndian professionals for exploring potential oil and gas reserves.Foreign experts fromU.S.A.,West Germany, Romania and erstwhile U.S.S.R. visited India and helped the

government with their expertise.Finally, the visiting Soviet experts drew up a detailed planfor geological and geophysical surveys and drilling operations to be carried out in 2nd FiveYear Plan (1956-57 to 1960-61).In April 1956m the Government of India adopted theIndustrial Policy Resolution, which placed mineral oil industry among the schedule Aindustries, the future development of which was to be the sole and exclusive responsibility ofthe state.

Soon, after the formation of Oil and Natural Gas Directorate, it became clear that it wouldnot be possible for the Directorate with its limited financial and administrative powers assubordinate office of the Government, to function efficiently. So in August 1956, theDirectorate was raised to the status of a commission with enhanced powers, although it

continued to be under the government. In October 1959, the Commission was converted intoa statutory body by an act of the Indian Parliament, which enhanced powers of thecommission further. The main function of the Oil and Natural Gas Commission subject to theprovisions of the Act, were to plan, promote, organize and implement programmer fordevelopment of Petroleum Resources and the production and sale of petroleum andpetroleum products produced by it, and to perform such other functions as the CentralGovernment may, from time to time, assign to it The act further outlined the activities andsteps to be taken by ONGC in fulfilling its mandate.

Period during 1960-80:

Since its inception, ONGC has been working very hard to transform countrys limitedupstream sector into a large viable playing field, with its activities speared throughout Indiaand overseas also. In India, ONGC found new resources in Assam, new oil province inCambay basin (Gujarat) and also added new petroliferous areas in the Assam-Arakan FoldBelt and East Coast basins (both inland and offshore). ONGC went offshore in early 70s anddiscovered a giant oil field in the form of Bombay High, now known as Mumbai High. Thisdiscovery, along with subsequent discoveries of huge oil and gas fields in Western offshorechanged the oil scenario of the country. Subsequently, over 5 billion tones of hydrocarbons,which were present in the country, were discovered. The most important contribution ofONGC however is its self-reliance and development of core competence in E and P activitiesat a globally competitive level.

Period after 1990:

The liberalized economic policy, adopted by the Government of India in July 1991, with anintention to deregulate and de-license the core industrial sectors including petroleum sectorswith partial disinvestments of government equity in Public Sector undertakings and other

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measures. As a consequence, ONGC was re-organized as a limited Company under theCompanys Act, 1956 in February 1994. After the conversion of business of the erstwhile Oiland Natural Gas Commission to that of Oil and Natural Gas Corporation Limited in 1993, theGovernment disinvested 2 percent of its shares through competitive bidding. Subsequently,ONGC expanded its equity by another 2 percent by offering shares to its employees.

During March 1999, ONGC, Indian Oil Corporation (IOC) and GAIL the only gas marketingcompany agreed to have cross holding in each others stock. This paved the way for longterm strategic alliances both for the domestic and overseas business opportunities in theenergy value chain, amongst themselves. Consequent to this the Government sold off 10percent of its share holding in ONGC to IOC and 2.5 percent to GAIL. With this theGovernment holding in ONGC came down to 84.11 per cent. In the year 2002-03, aftertaking over MRPL from A V Birla Group, ONGC diversified into the downstream sector.ONGC will soon be entering into retailing business. ONGC has also entered the global fieldthrough its subsidiary, ONGC Videsh Ltd. (OVL). ONGC has made major investments inVietnam, Sakhalin and Sudan and earned its first hydrocarbon revenue from its investment inVietnam.

2.4 Recent Achievement and milestone:

ONGC is the major player in the energy upstream sector. They have achieved greatmilestones and have a golden history behind it.ONGC has been ranked as the Numero UnoOil and Gas Exploration and Production (E&P) Company in Asia, as per Platts 250 GlobalEnergy Companies List for the year 2007.ONGC is ranked at 23rd spot amongst Top 250Energy Majors of the World in the Platts List based on outstanding performance in respectof Assets, Revenues, Profits and Return on Invested Capital (RIOC).ONGC is the only Company from India in the Fortune Magazines list of the Worlds MostAdmired Companies 2007. ONGC is 9 th position in the Industry of Mining, curde oilproduction.ONGC is ranked at 239th position in the prestigious Forbes Global 2000 andNumero Uno ranking amongst Indian Companies.ONGC was ranked at 369th place inFortune Global 500 list for the year 2006 based on Revenue.ONGC is ranked amongst top 50publicly traded Companies in Oil and Gas Industry, based on the year end (2007) marketCapitalization by PFC Energy.ONGC has established 6.42 billion tones of In-placehydrocarbons reserves with more than 300 discoveries of oil and gas.

India has explored 7 basins, out of which ONGC has discovered 6.ONGC produces 762.3million metric tones (MMT) of crude and 440.7 Billion Cubic Meters (BCM) of Natural Gas,from 115 fields.ONGC got Biggest Wealth Creator Award for the third time in a row forthe period 2000-2006. OMGC is ranked as most respected Company in PSU category in the2006 business survey, with 13th position in the league of the most respected IndianCorporate.ONGC topped the Business India Super 100 list based on sales, Profit after Tax(PAT), Net Fixed Assets and Market Capitalization for December 2006.Indias credit ratingagency CRISIL and ICRA gave highest credit rating of AAA and LAAA respectively.ONGCis the only fully-integrated petroleum company in India, operating along the entirehydrocarbon value chain. It holds largest share of acreages in India.It contributes about 78%of Indian oil and gas production,about one tenth of Indian refining capacity.It created arecord by turning MRPL from BIFR to BSE Top 3

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2.5 Product Rang of ONGC:

Liquified Petroleum Gas (IS 4579-1999)

Liquified Petroleum Gas for automotive purpose (IS 14861-2000)

Naphtha (Fertilizer Grade) Naphtha (Export Grade)

Motor Gasoline Grade-BJII MS 88 (IS 2706-2000)

Aviation Turbine Fuel( IS 1571-2001) (Domestic)

Aviation Turbine Fuel (JET A1)

SKO (IS 1459 -2001)

AUTOMOTIVE DIESEL FUEL (BS II) (IS 1460 - 2005)

AUTOMOTIVE DIESEL FUEL (BS III) (IS 1460 - 2005)

VACUUM GAS OIL (EXPORT)

FURNACE OIL (IS 1593 - 1997)

FURNACE OIL (Special Grade)

FURNACE OIL (380 CST) (Export)

LOW SULPHUR HEAVY STOCK (LSHS)

BITUMEN (60-70) (IS 73 - 1961)

BITUMEN (80-100) (IS 73 - 1961)

SULPHUR (IS 6655: 1972)

MOTOR GASOLINE GRADE- BS III MS 91 (IS 2796 - 2000)

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2.6 Performance of the company over the last few years (Statistical Profile):

This is the graph for performance of ONGC for past few years.It is clear from graph thatcompany has performed consistently well for the past few years.It is clear that

Crude Oil production has increased considerably for past few years The production of value added products has decreased onto certain level but in

the fiscal 2007-08 it has improved

MRPL the petroleum retailing company of ONGC has performed well. This can

be seen from the graph

Globally it is difficult to maintain RRR>1. But ONGC is the only company whcih isperforming well on this front as shown in graph.

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Sources: ONGC NEWS SHELF, May 2008

It is clear from the chart that ONGC performed quite well in terms of RRR. For past 10 yearsONGC have posted an average RRR equal to 1.02. And in terms of past 5 years ONGC hasposted RRR equal to 1.09.

At global scenario both ONGC and its subsidiary OVL are also posting RRR>1. In its totalglobal ranking 135% share of ONGC is 132.56% and that of OVL,its foreign subsidiary is1.96%. Globally it stands at no.3 after PetroChina and ENI as shown in chart below:

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Sources: ONGC NEWS SHELF, MAY 2008

In terms of Oil and Gas production the recent performance of ONGC and OVL is as shownbelow:


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It is clear from charts that there is a slight decrease in the production of gas and oil fromONGCS prespective. While its foreign subsidiary OVL has posted a net increase of 10.21%in the production of oil and gas. ONGC has laid great hopes on its subsidiary OVL in future.According to one of the survey conducted by Indian rating agency CRISIL OVL will emergeas the biggest player in the Indian oil sector.

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2. 7 Financial status of ONGC:

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Above shown charts are indicating about the financial position of ONGC. It is clear from thecharts that ONGC have done well in past years. It can be seen from the EPS and PAT values.The numbers are indicating that they have not only posted huge profits but also their EPShas increased significantly.

It suggest that financial condition of ONGC is sound.For the quarter ended on June,2008 profits has 44% as compared to the previous year. It isbecause of higher revenues realization on account of higher crude prices.However, companyhasnt gained in its efficiency as is net margin-net profit as a percentage of net sales droppedto33 % in April-June quarter.The companys profit in the April-June quarter stood at Rs.6,636 crore against Rs.4,610crore a year ago.It is significantly higher than 152% as compared to previous quarter.Because in January-March quarter ONGC was badly hit by underrecoveries.Quarterly net sales for the company crossed Rs.20,000 crore for the first time, rising 46.5%to Rs. 20,052 crore.

2.8Future prospects/ plans:

To focus on core business of E&P, ONGC has set strategic objectives of:

Doubling reserves (i.e. accreting 6 billion tonnes of O+OEG).

Improving average recovery from 28 per cent to 40 per cent.

Tie-up 20 MMTPA of equity Hydrocarbon from abroad.

The focus of management will be to monetise the assets as well as to assetise the money

ONGC looks forward to become an integrated energy provider, with:

1. New Discoveries and fast track development2. Equity Oil from Abroad Downstream value additions and Forward Integrartions3. Leveraging state-of-the art technology and global best practices4. New source of Energy Production from small and marginal fields.5. May decide to venture into petroleum industry

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CHAPTER-3

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3.1 OBJECTIVE OF STUDY:

ONGC is a major player in the energys upstream sector. They have performed quite well onthe front of Exploration and Research (E&R). They entered into petroleum retailing business

five year back when they acquired MRPL from A.V.Birla group by acquiring all theshareholding of Birla group. This acquisition was carried out on 28 th March, 2003. AlsoONGC invested equity of Rs.600 crore to make it ONGCs highest paid subsidiary. MRPLperformed quite well on its front in retailing business. It enlightened the retailing business forONGC.

Due to MRPLs success in retailing business Government of India give permission to ONGCto set up 1500 petroleum retail outlets. ONGC has got exclusive marketing rights for the saleof oil and petroleum products in Indian market. Although ONGC has not ventured into retailbusiness at present scenario.But they may decide to venture into this business in future.

The Research project has been carried out to aid the ONGCS reach into retailing business.Through my study I want to achieve following objectives:

To study impact of rising oil prices on the sales of petroleum retail outlets

To study the present market scenario for petroleum Retail Company

By doing this research I want to add to the knowledge of ONGC a brief picture of retailingbusiness in India (particularly in Delhi NCR) so that in future ONGC may decide to set uptheir petroleum retail outlet.

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3.2 Research Methodology :

In order to find out the real scenario of fuel retailing in India first hand data could prove to bea major source. For this collection of raw data is very important. As raw data provides a greatdeal of information to the researcher and he can take decision on the basis of information

obtained. This statement has the implications enlisted below:

It will give a clear idea regarding the sales of petroleum retail outlets

They can examine the available information in the form of data to make a decision.

This will give a clear idea regarding market scenario of oil companies.

This will help ONGC to take any decision whether to venture into the retailing business ornot?

From this it can be concluded that Data collection is a very important part of project.

Data

Raw Numbers

Information

Projected objectives were considered and a market survey was done. For this surveyfollowing procedure was considered.

Procedure:

Reading about the problem

Deciding on objectives to proceed.

Developing survey instruments

Finally analyzing the data and make conclusion

Process adopted:

Gaining knowledge about the problem:

For this the reading work was undertaken first in order to gain in depth knowledge about theproblem. This was very useful while developing questionnaire.

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Steps in developments of survey instruments:

The main instrument required for survey was a well developed questionnaire. Thedevelopment of questionnaire took place in following steps:

Step 1

Research objectives are being transformed into information objectives

Step 2

The appropriate data collection methods have been developed

Step 3

The information required by each objectives is being determined.

Specific Questions/ Scale measurement format is developed.

Step 4

Questions/ Scale measurements being evaluated.

Step 5

The number of information needed is being determined.

Step 6

The questionnaire and layout is being evaluated.

Step 7

Revise the questionnaire layout if needed.

Step 8

The questionnaire format is being finalized.

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Survey:

In our research we have to find out the impact of rising oil prices on the sales of retail outlets,so for this the survey of two sections was covered. These sections were

a) Owner of petroleum retail outletsb) Customer who drives sales of petroleum outlets.

Research Design:

A two stage research was conducted.

1. Secondary Research:

Data was collected from Websites and Catalogues to get information about the problem.

2. Primary Research:

A primary research was conducted.

The questionnaires were developed for owners of petroleum retail outlets and customers andin these questionnairess following areas covered:

1) Sales of Retail outlets2) Preference of customer for public transportation(mainly metro) instead of their own

vehicle3) Impact of surge in global prices on the sales or retail outlets.

3.3Sources of Data Collection

The first of research consisted of secondary data search from following sources:

a) Websitesb) Catalogues

In this search information about present market scenario of petroleum retailing business,surge in global oil prices and the impact of increase in petroleum prices on the preference ofpeople was being evaluated.For conclusive research, questionnaires were developed based on

secondary data to gather information on the research objectives.

A pilot study was conducted to test these questionnaires. In this sample of 10 people waspicked up from the target population on convenience basis, to determine the limitation anddeficiencies in the questionnaires.

The final draft of the questionnaire was then prepared based on observations from the pilotstudy.

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3.4 Sampling Plan:

3.4a)Sampling place:

In the present research two segments covered were

a) Owners of Petroleum retail outletsb) Customers section

For these two segments sample size of 50 each was being considered and for this DelhiNCR region was being chosen as sampling place.

3.4b)Sampling technique:

For this Simple random sampling was used in both the cases. As in simple randomsampling every item in population has an equal chance of being selected. It removes the

element of biasness in the data collection, analysis and other factors.

As we have to cover mainly the customers and petroleum retail outlet owners there isequal chance of being selection of every sampling element in this technique.

3.5 Limitation of study :

There were problems/obstacles faced during the initial part of project which were howeverovercome successfully. To list:

1. It was difficult to break the ice with the petrol pump owners. It was a daunting task to

convince them to fill the personal information regarding volumes of petroleum products,sales of their retail outlets as this information is very sensitive for them.

2.It was difficult to convince people for providing time to fill the questionnaire as every oneis very busy in their work. It was difficult to convince the owners of retail outlets that theinformation obtained from them wouldnt be disclosed to anybody.

.

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CHAPTER-4

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4.1DATA REPRESETATION ANALYSIS AND INTERPRETATION:

The data has been analyzed on the basis of two questionnaires. First questionnaire is basedupon survey conducted in Delhi NCR region covering a sample of 50 people about their

preference for public transport due to rising oil prices. The analysis of questionnaire 1 is asfollows:In the very first survey 68% male and 32% females were taken as respondents. Out of these26% people belong to students category, 68% service class and 6% to other categories. Outof these people 84% were from Delhi and 16% to other states.

Q.5. Do you have your own vehicle:

Availability of vehicle Frequencies

Yes 41No 9

0

10

20

30

40

50

Frequencies

Frequencies 41 9

Yes No

Interpretation:

Out of these respondents 82% of people have their own vehicles and that of 18% dont have.Q.6. If yes, then what type of vehicle do you have:

Type of vehicle Frequencies

Two wheeler 23

Four wheeler 18

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Two

wheeler

56%

Four

wheeler

44%

Interpertation:

This question reveals the fact that people who have their own vehicle, out of these people56% people have two-wheeler and 44% people have four-wheeler.Q.7.)Do you operate it onto its full capacity:

Capacity utilization Frequencies

100% 6

80-100% 10

60-80% 13

50-60% 11

Less then 50% 1

43

50-60%

27%

then 50%

2%100%

15%

80-100%

24%

60-80%

32%


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test application:

By applying Chi square test () we can analyzed if there exists a significant difference

among choosing mutual fund schemesStep1: State Hypothesis:

Ho: There is a significant relationship between rising oil prices and switching of people tometro.Ha: There is no significant relationship between rising oil prices and switching of people tometro.

Step 2: Set the Rejection criteria:DF = 5-1 = 4

At alpha .05 and 4 degrees of freedom, the critical value from the chi square distributiontable is 9.488.

Step 3: Compute the Test Statistics: = (O-E) E

Observed Expected O-E (O-E) (O-E) E

6 8.2 -2.2 4.84 0.59

10 8.2 1.8 3.24 0.39

13 8.2 4.5 20.25 2.46

11 8.2 2.8 7.84 0.95

1 8.2 2.8 7.84 0.95

= 5.34

Interpretation:

As the Chi-square test statistics 5.34 is less then the critical value of 9.488, hence nullhypothesis is accepted and hence there exists a significant relationship between rising oilprices and switching of people to metro.

Q.9 What are other mode of transportation:

Mode of transportation Frequencies

Metro 35

Others 9

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Metro

80%

Others

20%

Interpertation:

From this pie chart it can be interpertated that people who dont use their vehicle to its fullcapacity have switched over to metro or other mode of transportation. It clearly shows thatrising oil prices are causing people to shift to other mode of transportation. It signifies thatdue to this switch over people are buying less oil for their vehicle and hence sales of retailoutlets are declining.

Q.10) Is this switch over temporary or permanent:

Switch over Frequencies

Strongly permanent 4

Mostly permanent 17Undecided 10

Temporary 2

Strongly permanent 2

test application:

By applying Chi square test () we can analyze the switch over to metro is permanent due to

rising oil prices.

Step1: State Hypothesis:

Ho: There is a permanent shift of people to metro because of rising oil prices.Ha: There is not a permanent shift of people to metro because of rising oil prices.

Step 2: Set the Rejection criteria:

DF = 5-1 = 4

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At alpha .05 and 4 degrees of freedom, the critical value from the chi square distribution

table is 9.488.


Observed Expected O-E (O-E) (O-E) E

4 7 -3 9 1.28

17 7 10 100 14.28

10 7 3 9 1.28

2 7 -5 25 3.57

2 7 -5 25 3.57

= 23.69

Interpretation:

As the Chi-square test statistics 23.69 exceeds the critical value of 9.488 hence null

hypothesis is rejected and hence there is not a permanent shift of people to the metro because

of rising oil prices. It is clear to all that oil prices are volatile and they keep on fluctuating

depending on demand-supply constraints. Hence people are still hopeful that these higher oil

prices will ease out in coming days.

Q.11) If switch over is temporary, what is the reason for this switch over:

Reason for switch over FrequenciesHigher oil prices 9

Others 1

Frequencies

higher oil

prices

90%

others

10%

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Interpretation:

According to this pie-chart it can be concluded that people for whom switch over is

temporary, 90% of those blame higher oil prices for this switch over. While other 10% peoplehave other different reason to switch over. It clearly shows the impact of rising oil prices onthe sales of petroleum retail outlets. As people have switched over to metro so they have verylittle tendency to go to petroleum retail outlets and buy oil. So the sales are declining.

10. Reason for permanent switch over:Reason for permanent switch over Frequencies

Higher oil prices 21

Time factor 2

Others

Frequencies

Higher oil

prices

91%

Time factor

9%

Others

0%

Interpretation:

Above pie-chart reveals that people for whom switch over is permanent, 91% of them relatesthis switch over to higher oil prices and 9% of people relates this to the time factor. This is

similar to that of temporary switch over of people so higher oil prices are forcing people toswitch over to metro or other public transport and hence sales of petroleum retail outlets aredeclining in Delhi NCR region.This was the analysis part of first questionnaire. Second questionnaire was developed to findout the sales of petroleum retail outlets. In this questionnaire 50 retail outlets of different oilcompanies were covered.The analysis of second questionnaire is as follows:Q.5 Mention supplement operations:

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Supplement activities Frequencies

Yes 23

No 27

Frequencies

Yes

46%No

54%

Interpretation:

According to this pie-chart it can be interpreted that 46% of petroleum retail outlets are beingaccompanied by supplement operations while 54% of retail outlets dont have these facilities.It shows that Indian petroleum industry is undergoing a transformation face that not only fuelretailing but also non-fuel retailing activities have a major role to play.Q.6)Mode of operations:

Mode of operation Frequencies

COCO 4

CODO 46

DODO

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Frequencies

CODO

92%

COCO

8%

DODO

0%

Interpretation:

This pie-chart reveals that 92% of the retail outlets are of CODO type and 8% are of COCOtype.It clearly shows that mostly all the retail outlets are CODO types means companyowned dealer operated. In India DODO type of retail outlets are very less and only Relianceis the player who has large base of DODO type retail outlets.

Q.8) Supplement operation leads to increase in customer base. How will you rate thisstatement.

Rating scale Your response

Strongly agree 45

Mostly agree 3Mostly disagree 2

Strongly disagree

In this question the owners of petroleum retail outlets were asked about the fact whethersupplement operations like car wash, restaurants, convenience stores etc. play a vital role toincrease their customer base. According to 90% of them strongly agree, 6% mostly agree and4% mostly disagree. It clearly shows that how much these non-fuel activities are importantand they are going to play a major role in coming days. The graphical representation of thisstatement is as shown below:

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Your response

Strongly

agree

90%

Mostly

agree

6%

Mostly

disagree

4%

Strongly

disagree

0%

Q.9) Mention Cumulative sales of HSD and branded Diesel for different quarters:

Different quarters Cumulative sales of HSD Cumulative sales of branded

(in crores) Diesel ( in crores)

April07-June-07 71 35

July07-Sept.07 72 36

Oct.07-Dec.07 80 35

Jan.08-March08 86 34


test application:

By applying Chi square test () we can analyze if the sales of HSD are greater than that of

branded diesel.


Ho: , The sales of HSD is greater than that of branded diesel.

Ha: =, The sales of HSD is less than that of branded diesel.

=95% significance level, = 5% significance level.


DF = 5-1 = 4

At =.95 and 4 degrees of freedom, the critical value from the chi square distribution

table is .711.

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At =.05 and 4 degree of freedom, the critical value from the chi-square distribution table is9.884.


Observed(in crores)

O1 for HSD

Expected (incrores) E1

for HSD

(O1-E1)/E1

Observed(in crores)

O2 forBranded

Diesel

Expected (incrores)

E2forBranded

Diesel

(O1-E1)/ E2

71 80.4 1.09 35 34.2 0.020

72 80.4 0.87 36 34.2 0.100

80 80.4 0.01 35 34.2 0.020

86 80.4 0.39 34 34.2 0.001

93 80.4 1.97 31 34.2 0.300

5.21 0.441

= (O-E) E

=5.21+0.441=5.651

Interpretation:

Calculated value DF Critical value

=95% =5%

5.651 4 .711 9.844

From this table it can be concluded that calculated value is not same for corresponding valuesof and . Hence . Hence null hypothesis is accepted it means that sales of HSD isgreater than that of branded diesel. Hence the supposition made by me is correct that due torising oil prices people are switching to HSD which is cheaper than that of branded diesel.

Q.10) Mention cumulative sales of normal petrol and branded petrol for different

quarters:

Different quarters Cumulative sales of normal

Petrol (in crores)Cumulative sales of brandedPetrol (in crores)


July07-Sept.07 59 26

Oct.07-Dec.07 65 24

Jan.08-March08 67 18


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test application:

By applying Chi square test () we can analyze if the sales of normal petol are greater than

that of branded petrol.


Ho: , The sales of normal petrol is greater than that of branded petrol.

Ha: =, The sales of normal petrol is less than that of branded petrol.

=95% significance level, = 5% significance level.


DF = 5-1 = 4

At =.95 and 4 degrees of freedom, the critical value from the chi square distribution

table is .711.

At =.05 and 4 degree of freedom, the critical value from the chi-square distribution table is9.884.


Observed(in crores)

O1 for HSD

Expected (incrores) E1

for HSD

(O1-E1)/E1

Observed(in crores)

O2 forBrandedDiesel

Expected (incrores)

E2forBrandedDiesel

(O1-E1)/ E2

57 64 0.76 27 23 0.70

59 64 0.39 26 23 0.39

65 64 0.02 24 23 0.04

67 64 0.14 18 23 0.92

72 64 1 20 23 0.39

2.31 2.44

= (O-E) E

=2.31+2.44

=4.75

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Interpretation:

Calculated value DF Critical value

=95% =5%

4.75 4 .711 9.844

From this table it can be concluded that calculated value is not same for corresponding valuesof and . Hence . Hence null hypothesis is accepted it means that sales of normalpetrol is greater than that of branded petrol. Hence the supposition made by me is correct thatdue to rising oil prices people are switching to normal petrol which is cheaper than that ofbranded petrol.Q.11) Higher oil prices are resulting in decline in the sales of retail outlets.How will

you rate this statement on rating scale.

Rating scale Your response

Strongly agree 48

Mostly agree 2Mostly disagree

Strongly disagree

Your response

Strongly

agree

96%

Mostly

agree

4%

Strongly

disagree

0%

Mostly

disagree

0%

Interpretation:

It can be concluded from this pie-chart that 96% owners of petroleum retail outlets stronglyagree that higher oil prices are resulting in decline in sales of retail outlets and 4% mostlyagree with this statement. It clearly indicates that higher oil prices are badly affecting sales ofretail outlets.

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CHAPTER-5

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5.1 SUMMARY:

This research paper is all about studying impact of rising oil prices on the sales of

petroleum retail outlets in Delhi NCR region. Every economy in the world isinterconnected with other economies. Whatever happens in one economy has an impacton the other economy. Similarly true for oil prices. Worldwide oil prices are risingcausing petroleum products to be dearer.

In this scenario oil marketing companies are suffering losses all across the world. TheIndian government is trying hard to compensate for the losses of oil companies. For thisgovernment is providing subsidies and oil bonds to public sector oil companies. Butimpact of rising oil prices has a much wider effect. These subsidies are not sufficient tomake over the losses suffered by oil companies.

In Delhi NCR region operation of metro also has a pronounced effect on the sales ofretail outlets. With metro in operation which is more convenient, cheaper, affordable andeasily accessible people are shifting to metro. This is resulting in decline in sales ofpetroleum retail outlets as people are using their vehicle less frequentlty.

In this scenario oil companies are battling hard to compensate for losses. The landscapeof petroleum retailing is changing in India. Petroleum retail outlets are beingaccompanied by more non-fuel activities like fun cinemas, restaurants, conveniencestores, malls etc. It is being believed that these activities provides an extra edge to thepetroleum retail outlets and their sales increases. It is believed that people prefer thoseplaces where with fuel retailing they can also enjoy other facilities.

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5.3 RECOMMENDATIONS:

From this research it is clear that growth of Indian fuel retailing business is being greatlyaffected by oil prices and large no. of retail outlets. So to improve the conditions for Indianoil marketing companies government of India has decided to put on hold opening ofpetroleum retail outlets in India for 2 years.

So on the basis of my studies I want to give following recommendations:

The prices of petroleum products should be market driven rather than government

driven. This will provide equal playing field for all players.

Indian urban sector has saturated by petroleum retail outlets but Indias rural market

is still being untapped. So oil companies should try to tap that market.

In the changed environment, establishing superior network architecture will be thecore area. Building of multiple networks like flagship urban, flagship highway,

flanking, rural etc. is what needed. Also, companies have to consider

finel project

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