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Home > Businesses > Oil and Gas > In focus

Essar Oil banks on tie-ups to keep petrol pumps afloat

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Essar is the only private fuel retailer in India which has been able to keep all its 1,400 petrol pumps operational despite cheap sale from rival state firms

June 25, 2012 | Economic Times Bookmark and Share  
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NEW DELHI: Essar is the only private fuel retailer in India which has been able to keep all its 1,400 petrol pumps operational despite cheap sale from rival state firms, but its outlets are surviving with the help of a tie-up with Amul to sell ice creams, milk and butter, deals with city gas distributors, and by giving dealers an assured return of 12.5% on investment.

Essar, Reliance and Shell outlets are unable to compete with state-run petrol pumps in their neighbourhood because public sector oil firms usually sell auto fuel below market rate as directed by the oil ministry. 

While Reliance and Shell have closed several outlets, Essar is keeping its pumps operational even if fuel sale at an outlet is zero, Essar Oil managing director & CEO Lalit Kumar Gupta said.

"Essar is paying its dealers 12.5% return on their investments as an incentive to keep the pumps operational. Minimum return is ensured to them by the company on a condition that outlets will not be closed," Gupta told ET

While Indian Oil, Bharat Petroleum and Hindustan Petroleum are compensated for their losses on selling fuel below market rates, private firms are unable to compete in the absence of subsidy and are forced to shut down their pumps.

Gupta said Essar was making efforts to make its pumps viable. "We have tied-up with Amul. There are 50 Amul shops in Essar outlets across Gujarat and Rajasthan," he said. Gujarat Cooperative Milk Marketing Federation owns Amul, the popular butter brand, which is India's biggest food product marketing organisation with an annual turnover of $2.5 billion. Amul stores also sell ice-cream, breadspreads, chocolates, milk products and confectioneries through its specific outlets known as Amul Parlours and Amul Cafe.

Essar has also joined hands with city gas distribution firms such as Indraprastha Gas, Maharashtra Gas and Adani to open compressed natural gas (CNG) stations at its outlets.

"CNG services are provided at 17 pumps and we plan to open CNG facilities at 50 more outlets by the end of this year," Gupta added. CNG rates are market driven, hence it is attracting fair number of customers and providing an alternative revenue stream to Essar dealers, he said. Essar has a unique branding model for providing CNG facilities at its petrol pumps. While retail outlets bear Essar brand, CNG dispensing unit displays the name of city gas distribution firm, Gupta said.

 
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