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Renewed push by Royal Dutch Shell into India’s fuel market

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Private retailers return to India’s fuel market

By Varun Sood and Joe Leahy in Mumbai

Published: November 27 2008 02:00 | Last updated: November 27 2008 02:00

The plunge in crude oil prices has prompted a renewed push by Shell and private-sector Indian groups into the country’s retail fuel market.

Groups such as Reliance Industries and Essar had all but shut down their operations only months ago because they could not compete with government-subsidised, state-owned operators. But now those such as Essar have reopened about half of their stations.

As the global price of crude oil has fallen by about two-thirds from its July peak of $147 a barrel, India’s private-sector fuel retailers are able to operate at a profit again without subsidies.

“We will be opening the rest of the petrol pumps by the end of January as we see this business again turning profitable,” said an executive from Essar Oil, a subsidiary of the Essar conglomerate.

Murli Deora, the country’s oil minister, said yesterday he believed crude prices had come down enough to enable the government to lower the retail price of fuel by late December.

India imports about 78 per cent of its oil. The soaring price of crude earlier this year had threatened the political survival of the Congress party-led ruling coalition, with inflation rising to a 13-year high of about 12 per cent and the current account deficit ballooning.

It also had a sharply negative effect on the government’s finances; India’s domestic fuel prices are pegged at an average crude oil equivalent of about $61 a barrel.

Any price rise beyond this is borne by state-run oil companies, which are then partly reimbursed by the government through the issue of bonds.

That has placed an extraordinary burden on the fiscal deficit. Even with the falling cost of oil, bonds used to subsidise retail fuel are expected to at least double to about 1.1 per cent of gross domestic product in the year ending in March, up from 0.5 per cent a year earlier, according to Goldman Sachs.

The subsidies had the side- effect of putting the private-sector retail petrol pump operators, which do not receive any assistance, out of business.

Essar Oil said the fall in crude prices had allowed it to reopen 560 of its 1,250 petrol pumps, while Reliance Industries is considering restarting its 1,400 fuel stations.

The third private player, Shell India, a subsidiary of Royal Dutch Shell, opened a new fuel outlet last month, taking the number of operating petrol stations to 36. Earlier this year the company closed 15 stations.

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