FUTURE MARKET STARTEGIES IN GAS RETAILING

Description
FUTURE MARKET STARTEGIES IN GAS RETAILING

A DISSERTATION REPORT ON THE TOPIC “FUTURE MARKET STRATEGIES IN GAS RETAILING”
DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT

FOR BACHELORS DEGREE IN BUSINESS ADMINISTRATION (PETRO MARKETING) By CHETAN SHARMA R250207011

Under the guidance of

Mr. Ash Narayan Shah (Associate Professor)

University Of Petroleum and Energy Studies

ACKNOWLEDGEMENT

I am privileged to take this opportunity in expressing my deep sense of gratitude to Mr. Ash Narayan Shah (Associate Professor) for having spared his valuable time and guidance which helped me throughout my research. He was a constant source of inspiration during the study.

I am also thankful to the other teaching staff of University Of Petroleum & Energy Studies without whose support and help, this project wouldn‘t have been possible. It was only due to their guidance that this project could be brought to this form in time and in an efficient manner.

(Chetan Sharma)

TABLE OF CONTENTS
CHAPTER NO. TITLE
Preface Executive Summary

PAGE NO.

I

Introduction
1) Retailing 1.1 Wheel of Retailing 1.2 Brand Building Methodology 1.3 Retail positioning Map 1.4 Knowing Your Consumer

11
12-13 14 15 16 17 18-19 20-21 22-26 27 28-29 30-31 32-33 34 34-35 36-37 38-41

II

Indian Petroleum Sector – An overview 2.1 Gas Availability 2.2 Gas Marketing Scenario in India

III IV

Gas Marketing Scenario-World Benchmark and price discovery mechanism 4.1Passing on the price increase 4.2 Pricing Strategies in India 4.3 Post APM

4

4.4 Current Scenario

V VI

Emerging Trends in the Fuel Retailing Sector Deregulation of the petroleum sector

VII

NELP:New Exploration Licencing Policy 7.1 NELP II 7.2 NELP VII 7.3 NELP VIII

42 43 44 45 46-47

VIII IX

Challenges faced by Oil marketing companies Committees 9.1Kelkar Committee 9.2Shankar Committee 9.3Rangarajan Committee

48-50 50- 51 51 52-53 54-55 55 55-57 57-59 60-61 62-64 65-66 66-69

X XI

Gas Retailing Natural Gas as a commodity 11.1Physical and Financial Trading 11.2 The Financial Market 11.3 Natural Gas Marketer

XII XIII

Guide To Retail Marketing Gas Retail Strategy: 13.1marketing strategies in Gas retailing 13.2 Business Customer Strategies

XIV

Emerging Trends in the fuel retailing sector: 14.1 Changing infrastructure 14.2Upgrading technology 70 71- 72

14.3 Non fuel initiatives 14.4 Changing consumer expectations 14.5 Government initiatives 14.6 Convenience Stores 14.7Food Service 14.8 Ancillary Service 14.9 Price based differentiation 14.10 Grocery retailing 14.11 High Volumer ,Low Margin Operating Model

72-74 75-76 76-77 78-79 79-80 81 81-82 82 82-83 84-85 86-88 89 90-91

XV XVI XVII XVIII

Consumer experience based differentiation Quality and Quantity Based Differentiation Network planning Supply chain optimization

CASES: British Gas (U.K) U.S.A Gas Market Research Methodology Conclusion References

92-95 95-96 97-98 99-101 102-103

PREFACE

The study was conducted to study the Emerging trends, options, challenges, market strategies prevalent in the gas retailing sector in India as compared to the International Market. The first section gives an introduction of the retailing sector as a whole. It explains points like how to build a brand or an offer and know your customer. Then it gives an overview of the Indian petroleum sector as in oil and natural gas value chain, Indian energy scenario, and the industry structure. It also explains the gas availability in India and worldwide, Gas retailing scenario. Then the focus shifts more specifically towards fuel retailing sector where in it is shown how the price increase in different countries is passed on to the government, oil companies and consumers. It also gives an idea of the retail SBU in oil companies and fuel retail milestones in India. The second section shows the research methodology adopted to carry out the study. The third section elucidates the facts and findings. It clearly makes out the trends emerging in the fuel retailing sector in India and abroad with respect to deregulation of the petroleum sector, increasing vehicle sales, technology up gradation, branded fuels, and non fuel initiatives, etc. Then it illuminates the options or opportunities available to the oil marketing companies as different differentiation strategies, supply chain optimization, network planning, Information technology, etc. It then reveals the challenges that the oil marketing companies are/ might be exposed to in the future like decreasing profitability of the retail outlets due to the ever expanding network, regulatory environment affecting pricing of petro products, managing technology employed, and supermarkets posing a threat to the independent fuel retailers.

The last but one section talks about the conclusion of the study and some recommendations provided to help the Indian oil marketing companies cope up with the challenges to come and emerge as market leaders. The last section speaks of the books, research papers, annual reports and internet links which have been referred during the course of the study.

EXECUTIVE SUMMARY There are various talks of the emerging retail boom in India, "with one modern store for every 400,000 population" at present. Among the factors that are driving this boom are convenience of shopping, store accessibility, quality of products, loyalty programmes and product assortment. From a broader economic perspective, the diffusion of supermarkets can be conceptualized as a system of demand by consumers for supermarket services, and their supply in developing countries. Gas retail sector is not far away. Petroleum & Natural Gas constitutes over 16% of GDP and includes transportation, refining and marketing of petroleum products and gas. India has a crude oil refining capacity of about 148 MMT. Production of petroleum products has grown at 6.5% p.a. during the last 3 years. The oil and gas industry in recent years has been characterized by rising consumption of oil products, declining crude production and low reserve accretion. India remains one of the least-explored countries in the world, with a well density among the lowest in the world. With demand for 100 million tonne, India is the fourth largest oil consumption zone in Asia, even though on a per capita basis the consumption is a mere 0.1 tonne, the lowest in the region- This makes the prospects of the Indian Oil industry even more exciting. Under-recoveries in marketing exert pressure on profitability and weaken financial position. The net under-recoveries suffered in selling MS, HSD, SKO (PDS) and LPG (domestic) had a negative impact on the overall marketing margins and profitability of the OMCs in 2005-06, with the impact varying across companies. On the policy and regulatory front, the issues of privatization and de-regulation continue to provide challenges due to lack of political consensus. While the Administered Price Mechanism (APM) stands dismantled in theory, marketing companies have little

autonomy in pricing decisions. Cross subsidies in LPG and Kerosene continue while the effective duty protection available to domestic refiners has been progressively reduced. The government has now allowed new entrants, including the private sector, to set up shops for selling petroleum products with a condition that they would have to also serve remote and uneconomic areas. Companies investing Rs. 2,000 crore in the petroleum sector have been granted permission to market petrol, diesel and jet fuel. One of the more visible transformations in the retail business of auto fuels is the recognition by the oil companies that non-fuel activities could be an important source of revenue at their retail outlets. So we have convenience stores, fast food centers and other such amenities finding a place at petrol stations. This is a very welcome change. However, the possibilities are immense and efforts in this direction too slow and limited. The retail outlets have the potential to become a one-stop shop for meeting innumerable needs of the customers on the one hand, and increasing the revenues of the outlet on the other. The expectations of customers have been changing as customer belonging to the trucker community is now demanding higher levels of product & service delivery. Businesses are putting intense pressure on entire logistics cost optimization: travel times under scrutiny. Also the Urban customer has become more vocal in demanding services like one Stop Shop, rest & recreation for highway travel, allied facilities like ATMs, Cyber cafes, courier services etc. There are various options which the Petroleum sector companies are scrutinizing. Some of them would be non-fuel retailing at fuel retail outlets, fuel at malls, entering nonfuel retail as a business model, using technology enablers for automation, going for fuel based or service based differentiation, optimizing their supply chain network, etc.

But there are various challenges awaiting these companies and some of which they are facing currently. Some of the challenges include low profitability, decreasing throughput per retail outlet (per pump throughput (ppt)), pricing and marketing policy of fuel which is till now influenced by the Government decisions, network planning dilemmas due to nonuniform tax structure across different states, non-level playing field, etc. These opportunities and challenges are proving to be an exciting time for the Indian oil and gas sector. With new product specifications, setting up of grass root refineries, overseas acquisitions and construction of new LNG terminals, India will play a significant role in the global energy market. The Oil marketing companies are beginning to realize the importance of a greater understanding of consumers‘ needs and making their core objective as continuously adding value to it‘s customers through innovative means. The fuel retail business has come a long way from the traditional retailing and the oil marketing companies are doing their best to attract and retain consumers by giving them all possible amenities and services to manage their economics in the best possible way.

INTRODUCTION
The oil and gas industry has already taken its first steps towards a major retail reform through deregulation of the petro –marketing business. With the retail reform, state owned oil majors are plunging into the marketing business with renewed vitality and partnering with private partners to upgrade their facade design and service at their petrol kiosks to provide a new retailing experience to their customers. This changing retail landscape leads to new challenges for petroleum products retailing (traditional as well as fuels like CNG and PNG) including opportunities in non-fuel activities. There has been a growing concern for availability of primary commercial energy to meet the country‘s growth imperatives. Our economy is growing at a brisk rate of around 9% and is projected to become the 2nd largest economy of the world by 2050 .Such growth requires a corresponding increase in the sources of energy as well as in supply infrastructure an gas retailing. Under these circumstances, the requirement of adequate and reliable energy supply at economic prices for optimal and inclusive growth of the country is a prime concern today. ? To develop and operate cost efficient and effective retail market arrangements, which are fair and equitable, to facilitate competition in the gas retail market. ? Maintaining relationship between gas shipper and gas supplier. ? Growing concern of Gas as a potential source of clean and efficient energy supply. ? Service station and convenience retailing.

RETAILING

The traditional utility today finds itself facing the most challenging market conditions that it has ever experienced. Deregulation is bringing in new competition, not only from other utilities but potentially from competitors with very different backgrounds. These new market entrants can utilize a variety of different strengths to threaten the traditional business model. They may leverage an existing customer base or use technology in general, and the Internet in particular, to leapfrog into the traditional utilities‘ market space and to steal business from them. Retailing is defined as ?A business that sells products and/or services to consumers for their personal/family use?.

This definition includes the interface of retailers with both vendors and consumers, as well as other processes like supply chain management that impact retailers. Retailers have to do the following tasks: ? Analyze their customers ? Develop strategies ? Choose markets and channels in which to compete ? Make location decisions ? Find, design, purchase, price and promote merchandise and services ? Organize their operations and manage their employees and stores ? Create an atmosphere that is inviting to customer and conductive for buying With growing competition and deregulation, the rules of the game in the petroleum retailing industry in India will undergo some changes in the next few years. The revolution in the

Indian telecom sector is a recent example of the impact of free market dynamics on the structure of the industry and the strategies of various players. Deregulation of the petroleum retailing sector in India will undoubtedly lead to a similar battle for market share, with new players attempting to gain share from current incumbents. This will exert a downward pressure on profit margins and force industry players to adapt their organizations and strategy. To succeed in this environment, the two key questions are: How can the industry prepare for the change? What will be the most effective strategies for petroleum retailers in India in the medium term?

WHEEL OF RETAILING Emergence of new retailing forms and decline of old retailing forms could be explained by ?Wheel of Retailing?. According to this, many new types of retailing institutions begin as low-status, low-margin and low-price operations. They become effective competitors of more conventional outlets, which have grown fat over the years. Their success gradually leads them to upgrade their services and proffer additional services. This increases their costs and forces price increases until they finally resemble the conventional outlets that they displaced. They, in turn, become vulnerable to still newer types of low-cost, low-margin operations
Vulnerability Phase Mature retailer
Entry Phase

• • •

Top heaviness Conservatism Declining ROI Traditional Retailer

Innovation Retailer

• • • • • •

• • • • •

Low status Low price Minimal service Poor facilities Limited product offerings

Elaborate facilities Expected, essential and exotic service Higher-rent locations Fashion orientation Higher prices Extended product offerings

Trading up phase

BRAND BUILDING METHODOLOGY From what seems at the face, there is opportunity for petroleum retailers in India to develop differentiated value propositions that will boost their revenues and improve competitiveness and profitability in the new market economy. Some important points to consider are: ? Strong brands drive revenue growth In times of increased competition, firms often adopt strategies aimed either at improving cost effectiveness or at growing revenues. In growth markets, the major imperative should be revenue enhancement through profitable share and market growth. ? To drive revenue growth, petroleum retailers may have to either attract new consumers or increase their share of the existing consumer’s wallet. Creating strong brand equity will be a key to achieving these objectives, consistently and profitably. Empirical evidence shows that strong brands add perceived value which can command a price and/or volume premium by differentiating from commodity products.

Identify the oppourtunity

know your customer

build the offer

buil brand identity

EXECUTE THE BRAND

RETAIL POSITIONING MAP By combining different service levels of retailing namely Self service, Self selection, Limited service, and Full service, and different assortment breadths, we can distinguish four broad positioning strategies available to retailers: Bloomingdale’s: Stores that feature a broad product assortment and high value added. Stores in this quadrant pay close attention to store design, product quality, service and image. Their profit margin is high, and if they are fortunate enough to have high volume, they will be very profitable. Tiffany: Stores that feature in a narrow product assortment and high value added. Such stores cultivate an exclusive image and tend to operate on a high margin and low volume. Sunglass Hut: Stores that feature a narrow line and low value added. Such stores keep their costs and prices low by centralizing buying, merchandising, advertising, and distribution. Wal-Mart: Stores that feature a broad line and low value added. They focus on keeping prices low so that they have an image of being a place for good buys. They make up for low margin by high volume

.

KNOWING YOUR CONSUMER To develop a strong brand and product proposition, a key imperative is to understand your target consumer‘s psyche, behavior and needs. Segmentation is a powerful tool to help marketers identify the most profitable consumer segments and to develop an offer which fulfils their needs better than competitors. Many successful global petroleum brands have used detailed psychographic segmentation as the foundation of building strong brands. As the consumers in India have not been exposed to differential pricing in petroleum, the price sensitive consumer is not as well defined as in other markets. Comparing the drivers of petrol station choice with more developed markets such as US, there are some stark differences which may give some pointers as to how consumers may evolve in India. In the U.S., while location (71%) is the primary parameter, price (56%) is also a very important factor. Product performance or quality (24%) is the third most important factor. However, there is a big difference in consumer‘s interpretation of quality. In India, quality is interpreted as ?no adulteration?, but in the U.S., it means impact on fuel efficiency and engine performance. Quantity (interpreted in India as getting the right amount of fuel, i.e. integrity) is not a parameter for consideration in a market such as U.S. As the Indian market evolves, parameters such as integrity of fuel quantity and purity are likely to become hygiene factors, and not bases for differentiation. Marketers would be able to evolve their brand offering in line with the development of consumer needs- from purity to higher order needs such as performance, fuel efficiency or even the quality of the buying experience.

THE INDIAN PETROLEUM SECTOR – AN OVERVIEW OIL AND NATURAL GAS SECTOR

The oil industry can be divided into three major components: upstream, midstream and downstream. The upstream industry includes exploration and production activities, hence is also referred as the exploration and production (E&P) sector. The midstream industry processes, stores, markets and transports commodities including crude oil, natural gas, natural gas liquids (NGLs) like ethane propane and butane and sulphur. The downstream industry includes oil refineries, petrochemical plants, petroleum products distributors, retail outlets and natural gas distribution companies. The downstream industry provides consumers thousands of products such as gasoline, diesel, jet fuel, heating oil, asphalt, lubricants, synthetic rubber, plastics, fertilizers, antifreeze, pesticides, pharmaceuticals, natural gas and propane. Both internationally and within India the oil and gas sector is characterized by existence of "integrated" companies, which are present in all these three sectors. The flow chart below shows oil value chain depicting the entire process under which both upstream and downstream segments are covered. To start with, crude oil is explored and produced (Upstream) and then transformed into various petroleum products with different end uses in refineries and finally marketed to retail customers (Downstream). Except Aviation Turbine Fuel (ATF) and Liquefied Petroleum gas (LPG), all the end products are sent to intermediate storage plants through terminal/depots and finally to retail customers. As regards ATF it is distributed directly to the Airfields or Air stations and refined LPG is dispatched to LPG storage/bottling plants for liquefaction and marketing to retail customers. Pipelines are mostly used to transfer the petroleum products and by products. For onshore fields, coastal tankers are used.

Oil Value Chain
Source: India Energy Portal

GAS AVAILABILITY GAIL India, the country‘s largest marketer and transporter of gas, has bagged the rights to market the entire gas produced from the Panna-Mukta and Tapti (PMT) fields jointly which would add around Rs 550 crore to the company‘s revenues, a senior company official said. The gas field in the western offshore, which is jointly operated by Reliance, British Gas and ONGC, currently produces 17 million cubic metres per day (mcmd) of gas. GAIL will get to transport and market the entire volume from April 1, 2008. It currently markets 4.8 mcmd of gas. In proportion to their equity in the block, ONGC, RIL and British Gas market 12.2 mcmd of gas from the PMT field. ONGC holds 40 per cent stake in these fields, while Reliance and BG India hold 30 per cent each. In March last year, the petroleum ministry had allowed the joint venture partners to directly market 5.6 mcmd gas from these fields for two years till March 31, 2008, and give the remaining 4.8 mcmd to GAIL. The output from these fields has now increased to around 17 mcmd. While GAIL‘s marketing share has remained the same, the joint venture partners have increased their direct sale of gas PD and 90 MMSCFD of Gas. Panna Gas Field: Panna gas field is 430 sq. kms in area, located 50 km east of the Bombay High field (95 km NW of the Mumbai city) on the basin of the River Panna, which is also home to the Panna Tiger Reserve. It lies immediately to the north of the Bassein gas field separated by a shallow NE-SW trending syncline. The average water depth is 45 m.

Structure of Panna field is a broad, composite domal with approximately 60 to 80 m of vertical closure at the Middle Eocene level. Mukta Gas Field: The Mukta gas field is 777 sq.kms in area, located 100 km Northwest of the Mumbai city. It is contiguous with the Panna block to the east and lies in an average water depth of 65 m. Present field production is 30000 BO Tapti Gas Field: Tapti field covers an area of 1471 sq.kms and lies 160 km north-north west of the Mumbai city along the basin of the River Tapti. After processing, crude oil is loaded to a stand by Tanker through SBM loading facility and gas is dispatched through 18" & 22 kms export line tied to ONGC's 36" & 42" gas line going to Hazira. Facility comprises dehydration and sweetening plant for providing fuel for power generation and gas lift system. Tapti Processing Platform (TPP) was designed, constructed and installed to handle 180 MMSCFD of Gas and 100000 barrels of liquid (both water and condensate). After recent de-bottlenecking the handling capacity has been enhanced to 210 MMSCFD.

GAS Marketing scenario in India The success of compressed natural gas (CNG) in Mumbai and Delhi has led Bharat Petroleum Corporation Ltd to intensify its focus on gas retailing. The company, which has been supplying CNG in Delhi through its joint venture with GAIL (India) Ltd, Indraprastha Gas, it is now talking to Reliance Industries Ltd for possible gas supply to Bangalore and Hyderabad. BPCL is also trying to tie-up with natural gas buyers in Gujarat including fertiliser and power companies for selling liquefied natural gas to be brought in at Dahej by Petronet LNG Ltd in January 2004. BPCL holds 10 per cent stake in Petronet.

RNRL gas retailing through gas procured from RIL Anil Ambani Group's proposed Rs 1,200 crore entries into retailing of gas to households and automobiles. As per the January 9, 2006 GSMA, RIL committed to supply 28 million standard cubic meters per day of gas, which may increase to 40 mmscmd under certain conditions, to RNRL for power generation. It projected a demand for gas (both CNG and piped natural gas to households and industries) in Mumbai at 2-2.5 mmscmd and 2.2-2.75 mmscmd in Delhi.

GAIL Gas applies for retail distribution license The city gas distribution subsidiary of state-run GAIL (India) Ltd,

GAIL Gas Ltd has applied for a licence on to set up compressed natural gas, or CNG, stations and piped gas network in six cities. GAIL will chip in with an initial equity of Rs200 crore in the subsidiary, while another Rs300 crore would be debt. Energy is an essential requirement for economic development and an important pre- requisite for improving quality of life. Within commercial energy, oil & gas have been playing an increasingly important role in the development of economies throughout the world and India is no exception. In the last 50 years, the oil & gas sector has taken giant strides to meet the growing energy needs of the Indian economy. The country has built up a large petroleum industrial network encompassing every facet of the oil & gas business including exploration, production, refining, transportation and marketing. It is imperative to have a long-term policy for the hydrocarbon sector in order to facilitate meeting the long-term needs of the country. Issues such as energy security for strategic and defence purposes, making the hydrocarbon sector globally competitive and ensuring the development of free market in the hydrocarbon sector need to be addressed whilst formulating a hydrocarbon policy for India. The Govt. of India has come out with a policy document "India Hydrocarbon Vision 2025- which lays down the framework which would guide policies for the hydrocarbon sector for the next 25 years. The radical restructuring of the Indian economy since 1991 has led to opening up of the economy to the private sector. Recent initiatives in Oil & Gas exploration, Natural Gas, Refining marketing and infrastructure have resulted in enormous opportunities for private enterprise in the high growth areas. Out of 26 sedimentary basins in the country, production has so far been undertaken in only 7 basins and almost two-third of the total sedimentary area remains unexplored/poorly explored. Out of a hydrocarbon resource base of around 30 billion tonnes, in place reserves account for 6.8 billion tonnes. The E&P policy entails carrying out extensive and intensive exploration to achieve a Reserve Replacement Ratio of more than one, while achieving a zero impact on the environment. One of the major milestones in Exploration is the opening up d

vast areas in non-producing, frontier basins and deep-water offshore areas both by DGH as well as National Oil companies. Reconnoitry surveys in deep water areas led to offering 12 deep-water blocks in NELP-99 out of which 7 blocks have been awarded. ONGC has already discovered oil in deep water offshore east coast and we may see more discoveries as further areas are opened up this year. The NELP has provided internationally competitive terms keeping in view the relative prospectively perceptions of Indian basins along with expeditious and time bound finalisation of contracts.

The demand for hydrocarbon in the country is growing at the rate of 6.5-7% per annum am India already is the eight largest consumer of 011 and is expected to be the fifth largest consumer in the next twenty years. With domestic crude production remaining almost static for the past five years, India has to depend largely on import. Without doubt Exploration policies and techniques aimed at maximising reserves accretion will be single most important factor for sustainable growth, calling for continued research and development in frontiers of technology to evolve cost effective methods for adding petroleum resources.

Another area of focus is the requirement of more natural gas in the country and India Is likely to emerge as the largest growth center for use of natural gas. To reduce pollution, accommodate rising electric power generation and diversifying its energy portfolio, numerous projects are under way to increase India's usage of the green fuel. The natural gas policy framework envisages conventional gas availability through domestic production as well as pipeline and LNG imports besides tapping unconventional sources such as CBM, Gas hydrates and underground coal gasification. The Central and State Governments have approved several sites for LNG imports and Petronet LNG lid; a joint venture company is the torchbearer in this arena. The Govt. is also considering to produce coal bed methane and several blocks would be soon on offer with the best terms available in the world. The CBM policy and the best fiscal terms for CBM were approved by the Govt. in 1997. A National Gas Hydrates Programme is in place and various R &. D studies are in progress to develop vast resources

of Gas hydrates in Western and Eastern offshore and Andarnan areas. India is amongst the only 4 - 5 countries in the world where R &. D work on gas hydrates has started.

According to recent World Bank study, India is the 4th richest country in terms of Purchasing Power Parity. This factor should help in evolving a total deregulation policy for overseas E&P business to obtain quality E&P projects abroad. This would supplement domestic availability of oil and ensure adequate and cost effective hydrocarbon energy through acquisition of overseas reserves. One would like to see more fiscal and tax benefits to make Indian companies more globally competitive.

In the downstream sector, the lubricants market was deregulated in the early 1990'5 and is now intensely competitive. Complete deregulation of the marketing sector is envisaged by April 2002. To meet the enormous demand for petroleum products, the Indian refining sector has seen one of the highest growth rates in refining capacity in the world. India has added around 50 MMTPA of refining capacity just in the last 4 years. Total refining capacity has now reached a level of 112 MMTPA and the country has become almost self-sufficient In refining capacity .The objectives of the refining and marketing policy are to maintain 90% self-sufficiency of middle distillates with the mix of national, foreign and domestic: private companies, to develop a globally competitive Industry with the free market and healthy competition, develop appropriate Infrastructure like ports and pipelines, provide better customer services and achieve product quality norms. Although the density of India's road and railway network is comparable to Europe, it needs to be supplemented by an extensive pipeline and Oil & Gas storage network. Since the major demand requirement would be met by petroleum import, augmentation of facilities at major ports and development of minor ports assumes significant importance. Although the need to use increasing quantum of energy by less developed countries for economic development is well appreciated, the adverse impact of

use of fossil fuels in general and hydrocarbon in particular on the environment cannot be wished away. A rational tariff and pricing policy to address these concerns is required which would provide incentives for use of cleaner, greener fuels, maintain a balance between boosting Govt's. Revenue and alignment of duties with Asia-Pacific countries as well as moving prices to international levels. Phasing out subsidies and cross subsidies is also an important step in this direction. Introduction of unleaded petrol, low sulphur petrol & diesel and incentives for use of CNG and LPG fuels have led to reduction at exhaust and toxic emissions.

To maintain long-term profitability and strengthen competitive edge of companies, India has embarked upon a restructuring and disinvestment process and steps have been taken to establish necessary regulatory frameworks for the hydrocarbon sector. New business alliances have emerge in the upstream and downstream sector and the policies adopted call for greater transparency, level playing fields for all companies, freedom of entry and exit etc. Information technology is making markets more efficient resource production less speculative & costly and monitoring use of hydrocarbons more effective, while making available multiple choices to customers. With the third largest pool of technical manpower, developed basic and communication infrastructure, mature financial markets, developed banking system and a commitment to the economic reforms process, India invites you to share its path of progress on the fast track of development. India provides large investment opportunities and the foreign investor will find a stable macro-economic, legal and fiscal environment in a country which has followed a democratic tradition during its 53 years of Independence.

GAS Marketing scenario (World)

China announced revival of its plan to build a giant $2.9 bn oil and gas pipeline across Myanmar, in a major move to get a uphold in gas retailing in Asian energy markets. China, which has outbid Indian oil companies in a number of major contracts in Myanmar, announced work on the new pipeline connecting Myanmar with its Yunnan province would begin. The project includes constructing two separate pipelines one worth $1.5 bn oil pipeline and the other $1.4 bn gas pipeline, with the country's major China Natural Petroleum Corporation holding a 50.9% stake in the project.

Benchmark and Price Discovery Mechanism

As the world market for natural gas is fragmented in different regional markets, it is not possible to talk about a world price for natural gas. Although there is a market liberalization trend all over the world, in many countries natural gas markets are still highly regulated. As a result of different degrees of market regulation, natural gas prices differ among countries. In North America, for example, where the market is highly liberalized, prices are very competitive and respond to demand and supply forces. After liberalization, natural gas prices have declined significantly. On the contrary, in the Russian Federation, where there is a clear monopoly, domestic prices are kept artificially low while gas is sold in foreign markets at higher prices in order to recover loses. In Europe, sales price for natural gas is most often based on competition with alternative fuels. Natural gas prices may be measured at different stages of the supply chain. At the beginning, there is the wellhead price. Prices are also measured for different end-user groups as residential, commercial, industrial consumer or electric utilities. Prices at the wellhead show high volatility depending on weather and different market factors. Increasing efficiencies in transport, storage and delivery allow for consumers to reduce the impact of price volatility. In general, the main components of natural gas price are: - wellhead price (the cost of natural gas itself or commodity cost) - long-distance transportation cost - local distribution cost In North America, wellhead prices were the first to be deregulated. Transportation costs are still regulated by National Energy Boards, while local regulatory boards regulate local distribution costs. The largest share of the final price is made up by distribution costs. As most large industrial and commercial gas users tend to buy gas from producers or market makers, they reduce their price considerably.

The major demand factors are weather and economic activity. Due to the importance of the weather factor, natural gas demand is highly seasonal. Other forces affecting demand are population changes and natural gas user trends. Changes in legislation concerning air pollution control may lead to increasing demand for this clean fuel. Supply factors are transport availability and accessibility as well as the physical amount of natural gas being produced and the level of stocks. Natural gas competes with other sources of energy as oil, electricity or coal. Natural gas price is particularly pegged to that of oil, since oil is natural gas closest substitute and supply of oil and natural gas are closely linked. Like most commodities, natural gas prices are cyclical. Their increase as a result of higher demand encourages exploration and drilling (as it happened in 2000). Although it takes some time for the production industry to respond to a price signal, once production increases prices tend to fall. However, market fundamentals indicate that in the future natural gas prices may not fall to the low levels of the past years. Main international benchmarks for natural gas prices in North America are Henry Hub (New York Mercantile Exchange) in USA and AECO (Natural Gas Exchange) in Canada. In Europe relevant benchmarks at present are the Heren Index (British National Balancing Point) or the Zeebruge Hub (Belgium). IPE (International Petroleum Exchange) Natural Gas futures price is also expected to become an international benchmark as Europe develops competitive markets.

PASSING ON THE PRICE INCREASE Developed and emerging economies have passed on price increases to varying levels as is evident by the following data:

Emerging Economie s

Retail Fuel Prices

Price volatility absorbed by Governme nt Oil Compan y Consume r

Explanation / Remarks

USA

Deregulate d

?

?

?

Motor fuels retail price directly correlated with world crude oil price (fiscal component lowest in developed world). Govt. watches fuel marketers closely to prevent price cartels

Motor fuels most expensive (source of fiscal income for the Govt.) and distribution margins among lowest in Europe UK Deregulate d ? ? ?

China

Regulated

?

?

?

Retail prices indexed to international spot prices plus taxes and a fixedmargin. Govt has no right to intervene in pricesetting.

India

Regulated Partially

?

?

?

Proportion of price hike passed to consumer with. Govt and oil companies absorb significant portions of price hikes.

Malaysia

Regulated

?

?

?

Some cost passed to consumer, while balance absorbed by govt through reduced taxes.

? Brazil Deregulate d

?

?

Brazilian consumer benefits from availability of local fuel substitute Ethanol and may switch to either fuel depending on the market price.

Russia

Deregulate d

?

?

?

Margins have also increased as Oil companies have passed on additional cost along with price increase.

Thailand

Deregulate d

?

?

?

Increased competition leading to margin pressure to oil companies. Reintroduction of ‘oil fund’ for petrol/diesel due to volatile international prices.

PRICING STRATEGIES IN INDIA:

From the Oil-Pool Account to Government Bonds

First, there was the APM.On 1 April 20023, the Administered Pricing Mechanism (APM) for petroleum products was abolished as part of the continuing reform of the petroleum sector towards a sector based on market mechanism. In theory, India‘s public downstream oil companies would now be free to set retail prices of all petroleum products based on an international parity pricing formula under the supervision of a petroleum sector regulator. The Government would abstain from influencing petroleum product pricing. Up to then, prices were controlled (or .administered.) for two transport fuels, petrol and high speed diesel, and two cooking fuels, kerosene and LPG. The subsidy for the four products was not part of the Government budget but came out of the so-called oil pool account. The oil pool account was funded by surcharges on petroleum products to be dispensed in times of rapidly increasing international prices and re-filled during times of lower prices. With the beginning of the new FY on 1 April 2002, the APM and with it the oil pool account was abolished. Subsidies for the two cooking fuels are considered an important social instrument to help poorer households shift from biomass to modern fuels. Following the abolishment of the APM; the Government would thus provide subsidies for kerosene and LPG ex-ante in its annual budget. Subsidies would not exceed 15% of the LPG and 33% of the kerosene import parity price respectively. Within 3 to a maximum of 5 years all budget subsidies on LPG and kerosene would be abolished and market prices would be in place for all petroleum products in India. Petrol, diesel, LPG and kerosene account for about 60% of

India‘s total petroleum product consumption. Diesel is India‘s single most important fuel as most of its vehicles, commercial and private, have diesel engines. Over 75% of India‘s crude requirement is imported.

Proportions of Consumption of Major Petroleum Products in India (2004/2005)

Diesel,, 36% Petrol,, 7%

Kerosene,, 8% All other Products, 40% LPG,, 9%

Consumption of major petroleum products in India (Source: Ministry of Petroleum Basic Statistics)

POST APM The practice of retail price setting was different from the theory right from the beginning of the post-APM period. The so-called public downstream Oil Marketing Companies (OMC), implemented regular retail price adjustments for petrol and diesel during the first two FYs following the abolishment of the APM. Despite these regular price increases the OMC incurred minor shortfalls for the sale of petroleum and diesel. However, those shortfalls were mitigated through the refining margins which now benefited from the import-parity pricing formula.

CURRENT SCENARIO The demand for petroleum products has been constantly and steadily increasing in India. It has grown at a CAGR of ~2.8% over last five years. The industry is expected to grow faster in the future on account of increased economic activity. In terms of demand mix, HSD and naphtha constitute more than 50% of the total demand (by volume). Going forward, LPG, MS, and HSD are expected to be the major demand drivers. Refining capacity depends on the technology used in refineries, capable of processing crude production into clean fuels. In the recent age of decreasing oil production refining capacity have to have well supportive technology, which meet increasingly more stringent environmental Standards. With the increase in global oil demand and stagnant reserve, refining capacity deserves new capacity addition to meet demand. But the graph shows slightly increasing trend of refining capacity till date in last decade. Refinery throuput, as opposed to designed capacity, is computed by dividing the number of refined barrels of oil processed by the actual number of days the refinery was in operation. Refined capacity is lower than refined throuput in the graph below implying under-utilization of capability of processing crude in the existing refineries and lack of up-gradation. There are 18 refineries

operating in the country, 17 in the Public Sector and one in the Private Sector, with a total installed capacity of 127.37 million metric tones per annum (MMTPA). The Indian Oil and Gas sector is one of the six core industries in India and has very significant forward linkages with the entire economy. The oil & gas sector meets more than two third of the total primary energy needs in the country. The sector has been instrumental in putting India on the world map. At present India is the sixth largest crude oil consumer in the world and the ninth largest crude oil importer. The country is also increasing its share in the 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 to commission another refinery with a capacity of 29 MTPA next to its 33 MTPA refinery at Jamnagar, Gujarat. As a result of this the Reliance refinery would be world‘s largest single place refinery.

EMERGING TRENDS IN THE FUEL RETAILING SECTOR A lot of changes are coming to Indian petrol marketing, stepping into broader retail liberalization. Along with PSUs (IOCL, IBP, BPCL and HPCL), although Reliance is India's biggest homegrown private-sector player, this incipient retail revolution extends to foreign multinationals, which will get to sell directly to Indians for the first time. The wheel has turned full circle since India nationalized subsidiaries of Shell (now Bharat Petroleum) and US Esso (now Hindustan Petroleum) in 1974, turning petroleum into a state affair. Shell, Reliance and another private domestic concern, Essar Oil, are concentrating on highways where 330,000 truckers guzzle $10 billion worth of diesel every year as the cities are crowded by the State oil companies. The new entrants are offering choices to Indian motorists. Most pumps have been isolated entities, selling a cocktail of kerosene, a highly subsidized product, and gasoline. Today there are pumps every few kilometers. Tired truckers, who earlier curled up in their vehicles for a nap and urinated by the roadside, now use motels, restrooms and telephones offered by Reliance's new pumps. And urban Indians, who until recently drove outdated cars and relied on word of mouth to find a clean pump, now drive large Fords and Hondas and demand better fuel and service. Competition is forcing Indian Oil, Bharat Petroleum and Hindustan Petroleum, which together run more than 20,000 outlets nationwide, to clean up their acts with various anti adulteration steps. The highway-building program should induce big increases in Indian oil consumption, currently only a tenth that of the U.S. Only 7 in every 1,000 Indians own a car, as compared with 12 in neighboring Pakistan. Surely $50-a-barrel oil will slow things in a largely poor country like India, but under normal circumstances the gap with the West will close.

India requires an investment of at least $450 million in the petroleum sector to gain retail rights. And it is tough to make your board understand why a bureaucrat or a minister sitting in New Delhi should fix the price of your gasoline and diesel when you have put that kind of money into the country. India deregulated the oil sector in 2002, but, as with many things in this country, the gesture was purely symbolic. India's foray into freer petroleum retail is a teaser to throwing open an estimated $200 billion broader retail market (just under Wal-Mart's total sales) to foreign direct investment. Supermarkets and department stores make up only 2% of this market, with the rest coming from 12 million mom-and-pop stores, according to a Jardine Matheson report. India badly lags its modern benchmark, China, in this aspect of consumerism--although it is just ahead of China in opening gasoline retailing.

Name of the company IOCL (with IBP) BPCL HPCL RELIANCE ESSAR SHELL ONGC

Number of retail outlets 17600 7332 7313 1367 1149 40 2

DEREGULATION OF THE PETROLEUM SECTOR During the last 25 years, functioning of the oil industry was governed by the Administered Pricing Mechanism. The APM served to achieve the following primary goals: ? Ensure availability of certain products at subsidized rates to the economically weaker sections of the society and for priority sectors like Fertilizers through a system of cross subsidization of products, ? Ensure stable prices, so that the domestic market is insulated from the volatility of prices in the international market, ? Regulate returns to the Oil companies at reasonable levels, consistent with efficiency of operations, to generate sufficient resources for encouraging growth of infrastructure facilities, ? Minimize the cross haulage of products by making available products at a uniform price ex-all refineries, and ? Achieve social objectives such as demand management. ? During this period, the oil industry approached every need of the consumers in a coordinated way. The supply plan mechanism, under which the product was made available to all the players irrespective of the original ownership of the product, provided for coordinated logistics movements. The coastal, pipeline and rail movements were planned on industry basis. As a result, the infrastructure was also developed on industry basis, with one of the companies acting as lead giving hospitality to the companies which were not represented.However; the APM also had certain major problems. The need to bring domestic prices in line with the international prices, the new environment regulation requiring considerable investment in the oil sector forced the Government to have a look at the regulated regime.

To start with Government deregulated the Lubricants marketing in 1993. This sector immediately witnessed entry of new players and number of competitors increased multifold. The new players brought in new Unique Selling Propositions (USPs) including international brands like Shell, Caltex, Mobil, Elf, Total etc., improved products and the market became very active. On the other hand, a lot of companies also offered cheaper alternatives, not always meeting the minimum specifications. The Government deregulated refining sector and Industrial fuels marketing in 1998. This gave rise to import parity pricing of the industrial fuels. Furnace oil and Naphtha prices, which remained fixed over long periods like an year or so -started moving in line with the international prices. The periodicity was initially one month. However, it was observed that even this period could result in price distortions resulting in imports from the nearby markets. Eventually the prices started changing every 15 days and the cycle got settled. Today, a major portion of direct fuels marketing is being done by the refineries directly 'in their own economical zone with certain product exchanges matching quantities on a ton -to - ton basis. The next step was in 2001, wherein the ATF prices were deregulated, which prices started reflecting international trends. Finally effective 1st April 2002, domestic and transportation fuels were also deregulated. This has led to fluctuating MS and HSD prices -changing every 15 days. The domestic fuels viz. SKO and LPG are still subsidized and oil companies have retained the selling prices of these products despite of increase in international prices. The retail fuels followed the ATF model and the major change, which took place as a result of deregulation, but was not felt by the common man, was the change in distribution system and pattern. The deregulation also brought in customer focus in the working of the oil companies. Petroproducts, which were a commodity till then, were being seen differently. The companies desired to establish their "Brand Image" in the market. They realized that only the customers could make them grow and proper attention was given to their needs.

The international format of a New Generation Outlet was introduced by BPCL to the Indian customers. These outlets, in addition to being attractive and sleek, are very efficient in customer handling and services. They included additional services like ATMs, in and out stores, Car Wash, etc. The companies introduced loyalty programme and ease of payments through 'Petro Card' for urban consumers and through 'Smart Fleet card' for major fleet operators. Both these programmes are based on Smartcard technology. Deregulation opened avenues for marketing improved branded products. IOCL came up with Xtra Premium, and Xtra Mile, BPCL came up with Speed93, Speed 97, Hi-Speed Diesel, and HPCL introduced Power petrol and Turbojet Diesel. APM dismantled in 2002, but government still involved in fuel pricing; pricing decisions based on social considerations. Private companies allowed marketing MS & HSD - imports also decanalized in 2003. Public sector oil marketing companies are technically allowed to sell petrol and diesel at market prices, although they end by selling these at below market price, since their largest shareholder, the government of India, regulates product pricing, in the hope that ruling party politicians win elections. After all, diesel is a mass consumption product. The same logic applies to LPG and kerosene pricing. Taxes make a good part of the price paid for petrol and diesel, which account for 50% of the petro products consumed in the country. In the four big metros, tax as a proportion of the final price is as high as 57% in the case of petrol, 37% for diesel, 23% for kerosene and 22% for LPG. Reliance on the petroleum sector for garnering taxes is as high as 20% for the central government. In the case of states, it is around 50%. The oil companies are not allowed to raise prices by that level, because of the existence of the price control system that exists as part of the Indian planning. Oil policy in India requires shifting away from the interests of socialists, the interests of oil PSUs and the interests of oil companies like Reliance. Instead, we need to apply the first principles of a market economy. Better health of oil companies requires the sector must be exposed to competition. At

present, a host of barriers make it difficult for the private sector to import and sell petroleum products in the country. In the 1990s, India found its way out of a mess in the industrial sector - where there were thousands of incompetent companies - by cutting customs duties and opening up to imports. The same story applies in the petroleum sector. We should focus on opening up the Indian market for petroleum products to global competition. Anyone should be allowed to open petrol pumps, buy petrol from anywhere in the world and sell to customers. Each of these steps should be jealously protected from the meddling of the ministry of oil and it‘s cronies in the oil sector. This will help destroy the monopoly of oil companies and force them to work in a competitive framework. The oil industry is on a threshold of change. It is changing its character from a Government controlled - faceless - bureaucratic in nature to a vibrant, customer oriented industry. The battlefield of competition would be the market place -where the customer would be the king. The retail market would be witnessing entry of new players like RIL, Essar and some multinationals.

NEW EXPLORATION LICENSING POLICY (NELP)

• Identification of areas in Indian sedimentary basins which can be opened for exploration and production: o Preparation of Basin Information Dockets. o Preparation of Data Packages for blocks on offer. • Promotional activities for NELP: o o o o Activities related to fixation of Marketing Consultant. Interaction with E&P Companies globally Arranging Data Rooms at different venues for NELP data viewing. Arrangements for viewing of data on ?Web‘.

• Co-ordination with G&G Group and Processing Group to fulfill the requirement of data for E&P companies – Sale of data (Regional). Respond to query about the data to E&P companies. •Co-ordinate with Ministry right from the declaration of NELP to bid receiving. • Co-ordination in the process of bid evaluation: o Formation of teams. o Co-ordination with Ministry. • Preparation of DGH Annual Activity Report. • Preparation of PSC documents after the award of blocks. • Suggesting areas for geological, geochemical and geophysical. Exploration in different parts of Indian sedimentary basins where hydrocarbon explorations are either poor or nil. • Any other assignment directed by Director General (DGH) from time to time.

New Exploration Licensing Policy II Under the New Exploration Licensing Policy (NELP-II) for exploration of oil and natural gas, the Government of India announced a second offer of exploration blocks. Companies are invited to bid for the 25 exploration blocks on offer. A total of 16 offshore blocks including 8 deep-water blocks (beyond 400 m isobaths) and 9 on land blocks, are on offer. Companies may bid for one or more blocks, singly or in association with other companies, through an unincorporated or incorporated venture. MAIN FEATURES OF TERMS OFFERED The successful bidder would be required to enter into a Production Sharing Contract (PSC), which will be negotiated based on the Model Production Sharing Contract (MPSC). Some of the features of the attractive terms offered by the Government are: • The possibility of a seismic option in the first phase of the exploration period. • No minimum expenditure commitment during the exploration period. • No mandatory state participation. • No carried interest by National Oil Companies (NOCs). • Income Tax Holiday for seven years from start of commercial production. • No customs duty on imports required for petroleum operations. • Biddable cost recovery limit up to 100%. • Option to amortize exploration and drilling expenditures over a period of 10 years from first commercial production. • Freedom to the contractor for marketing of oil and gas in the domestic market. • Provision for assignment.

India launching NELP VII India announced the auctioning of 80-85 oil and gas blocks for exploration and production in the seventh licensing. The seventh and last offshore licensing round under India's New Exploration Licensing Policy (NELP), which saw the release of a record 57 oil and gas blocks, was launched. Of the total blocks to be offered, nine were in shallow water, 19 are in deepwater and 29 in onshore. Most of the deepwater blocks will be off the country's western coast. India's seventh licensing round aimed at attracting international majors and companies with deepwater exploration and production experience. In addition, the latest auction saw Indian-born billionaire steel baron Lakshmi Mittal taking part in the bidding for the first time.

Oil regulator Directorate General of Hydrocarbons (DGH) carved out 80-85 blocks to be offered for bidding under NELP-VII. The total acreage of the blocks on offer is about 0.4 million square kilometers. Offshore blocks on both east and west coast would be offered, in addition to a few on-land blocks. Although the government had promised marketing freedom and market price for oil and gas found by companies investing in NELP rounds, there were attempts to regulate price of gas to be produced by Reliance Industries from its NELP-I block, KG-D6. NELP-VII saw a partial introduction of 'Open Acreage' system alongside bids for a specific number of blocks on offer. Under this system, companies picked and choose areas they want to explore. For this, a National Data Repository was set up. Road shows for NELP-VII were held in two parts. In the first part, the eastern hemisphere was covered with investor conferences in Moscow, Kuala Lumpur and Sydney/Perth during November and early December. Western oil locations including London and Houston were covered in January.

New Exploration Licensing Policy VIII ON 8th August 2009 in Mumbai PRESENTATIONS BY : ? MOPNG ? DGH ? CII ? Indian & Foreign Oil & Gas Operators The largest ever offerings were made under NELP – V III. A total number of 70 blocks were offered in NELP – VIII (24 DW+28SW+18OL=70) Revised and attractive bidding terms were kept in play. The non E&P companies also given opportunity during NELP- VIII Weightage was given to the experienced players in Deep Water Simplified productions haring under CBM Online registration at www.indianelpviii.com

Challenges faced by oil marketing companies: The last few years have seen several developments in Indian petroleum sector that continues to make a transition from a fully controlled industry to one that is driven entirely by market forces. However, the highly sensitive nature of the industry and the potential impact of a fully decontrolled price regime on the various stakeholders have resulted in a situation where the industry is buffeted by a host of conflicting forces. For instance, while the refining margins remain buoyant, fetching large profits for stand-alone refineries spiraling crude prices and inability of OMC‘S to increase the retail prices in proportion to the rise in crude prices and the inability of OMC‘s to increase retail prices in proportion to the rise in crude price simply that the marketing sides of the business have started incurring large losses. Growing competition in retail markets has prompted the OMC‘s to aggressively expand their retail networks. While this strategy has acted as a protective factor against competitive pressures, it also has resulted in a sharp decline in the per pump throughput. The latter is a key factor determining the viability of any retail outlet, given the low margins (gross margin of around 1.75) in the automobile fuel dispensing business.
Petroleum Manufacturing Integrated Petroleum and Energy companies face a great number of advanced pricing challenges in achieving profitability. Destructive pricing practices including ?cost-plus? and ?match the competition,? create unnecessary discounting and pricing erosion, and quoting below breakeven prices which result in lost revenue and profit opportunities. Improving pricing is the most powerful way to improve business and financial performance for integrated petroleum and energy industry companies. Fuels pricing, for example, is driven based on spot price, a significant attribute for pricing fuels in a given region, while long-term deals for lubricants require segmentation or differentiated customer, product, and market strategies with a high-visibility into contract,

product mix, and customer profitability based on all the cost-to-serve components. It is critical that customer needs are met across the value chain while remaining profitable on a transaction and contract basis. Petroleum and energy industry leaders are at a competitive disadvantage if sales, marketing, finance, operations, and management have limited visibility into pocket price and pocket margin, lack a uniform pricing strategy, practice unscientific ad-hoc pricing, and lack relevant and timely data. Pricing Challenges in the Petroleum / Energy Industry The most successful industry-leading petroleum and energy industry companies improve revenues and generate a high ROI by addressing complex pricing problems including: Lack of visibility into competitor‘s pricing strategy: Sales managers need to be able to proactively respond to a significant deviation from historical behavior by a competitor as this impacts price position drastically versus these same competitors the next day. ?One size fits all? pricing: Actionable differences in customer segment purchase behaviors allow pricing based on customer value or product end use creating incremental revenue. Reactive rather than proactive pricing: The ability to anticipate demand patterns and change prices based on expected demand behavior shows price leadership and prevents potential margin erosion that can be caused by matching the competition on lower prices. Further benefits are found from predicting optimal prices and volume ratability, effective arbitrage, customer compliance tracking, and a number of other proactive pricing strategies. Lack of visibility into key components of cost-to-serve: Sales Managers need adequate negotiation tools providing critical data including cost to serve, willingness to pay, customer price history and market conditions. Additive costs, transportation and other relevant line items are usually fixed however the relationship between spot price costs should be visible and monitored for any negative impact to margins. Effective management of rebates, services and discounts: Those evaluating long-term teams must consider the impact on the cost-to-serve and ultimately profitability given additional discounting and services related to selling of products including installation, special parts, or other initial investments in equipment and services for new and existing customers and products.

KELKAR COMMITTEE:

Though economic reforms started in 1991, tax reforms; somehow have not got the due attention. The architect of liberalization process the then Finance Minister Mr. Manmohan Singh made some attempt based on the Raja Chelliah Committee recommendations. His successors Mr. P. Chidambaram and Mr. Yashwant Sinha carried this forward a bit more in direct and indirect taxes. But the fact remains the reforms in this crucial area have been adhoc and root cause of the problem still remains. The objective of rationalizing cumbersome tax structure in a bid to reverse deteriorating public finances, improve tax-GDP ratio by making tax administration simple, tax base wide with low tax rates. Kelkar panel, which submitted its consultations papers on direct and indirect taxes separately, is justified in observing that the most direct way to raise tax GDP ratio is to remove most of the plethora of exemptions granted on import and excise taxes for a variety of reasons, mostly for non economic considerations; widen the indirect tax net by expanding the service tax base; and to improve taxpayers compliance. To boost exports and FDI, the government must sharply reduce the transaction costs and the proposed indirect tax reforms are expected to reduce transaction costs by 50 per cent. Accordingly, it has proposed two-tier customs duty with 10 per cent for raw material imports and 20 per cent for finished products. It has exempted from duty life saving drugs, government imports for defence, security and atomic energy and RBI imports. Higher duty of up to 150 per cent has been recommended for specified agriculture products and demerit goods. On excise, it has recommended again a two-tier system with 8 per cent rate for food products and 16 per cent for all other items. It has suggested removal of most of the exemptions but provided separate rates for agriculture products and tobacco besides zero percent duty on life saving drugs and security related items. Apart from total automation of tax administration, the panel on direct taxes has sought to move towards institution of a simple and transparent system, reduce transaction costs of revenue collection, alignment of incentives and widening the base.

To deal with such situations, Mr. Kelkar has justifiably suggested that no tax exemptions be given to contributions to charitable institutions and instead government could give grant to genuine institutions, which could be monitored. Now what is happening is there is no record of how much money is collected and for what purpose. Also such exemptions have only increased paperwork of the tax authorities. By removing such exemptions, Government not only improves tax collections but also keep a tab on those institutions. The broad thrust of the Task Force recommendations is in favour of simplifications of the tax policy, reduction of tax rates and removal of anomalies as well as improvement of administration of tax collection system. The proposed tax rental arrangement for taxing agriculture income is also welcome though it is beset with constitutional hurdles particularly from State Governments. As the whole structure is strongly designed to be revenue neutral, there should not be any quarrel with the proposals. But one month after the proposals have been made, there is a widespread criticism from several quarters. The industry is not happy. Though it welcomed the lowering of corporate tax and reductions in customs and excise duties, it is against removal of exemptions. Likewise the personal income tax payers too happy with the proposals to raise tax slabs but were critical of the move to do away with exemptions and concessions for savings and interest on housing loans.

The convention unequivocally demanded the scrapping of the committee report for following reasons: ? Terms of reference was flawed as import-substitution for enhancing selfreliance – so vital for the country – was mixed up with boost for defence exports. The goal of making self-reliant defence systems was relegated in favour of commercial defence business for the benefit of private corporates, backed by foreign MNCs. ? The constitution of the committee was seriously lop-sided in favour of private sector. The competitors of public sector in private sector were in the committee thus having a clear conflict of interest. This itself poses a question mark on the credibility of such a one-sided report, which naturally has been devoted to highlight the achievements and strength of the few private companies, ignoring and some time ridiculing the achievements of infrastructural capabilities and expertise available with government-run defence industries and R&D. Not a single trade union/association

representative of employees, who are the major stakeholders, was included in the committee. On this score alone the report needs to be scrapped. ? Security perception, so vital for nature of preparedness of armed forces vis-àvis long-term production/ acquisition of programme and defence system is totally missing. No evaluation has been made to assess strength, weakness, opportunity and threat to the existing defence industries, infrastructure, expertise and R&D. No exercise has been undertaken in the report either at macro level or at micro level for achieving self-reliance with technological up gradation and R&D input to achieve optimal capacity utilization in public sector defence industry to address India‘s security needs. ? Kelkar Committee Report unabashedly pleads for entry of private sector at every level, not as a supplementary player, but as a major player, creating ?Raksha Utpadan Ratna? in private sector. This would mean that public funds are assured to private sector in the name of R&D for earning profit through defence exports that too with tax concession. ? Private sector would be mostly in collaboration with foreign firms under the cover of Indian private sector. Defence MNCs would be given clear entry in the most strategic area of the country. This will jeopardise nation‘s security. With the spectre of terrorism looming large, free access to private sector– both Indian and foreign – in arms and ammunition manufacturing would be a serious security hazard for the country.

SHANKAR COMMITTEE: In, Shankar Committee, the Government had dismantled the cost-plus pricing and decided to align the consumer price of gas to international prices. The official said that prices should not be determined by costs alone. Companies should be allowed some margin in the prices over total cost. Upstream companies can further invest the surplus generated because of margins in exploration business.

This mechanism has very clearly determined the producer price to the gas producers to compensate them for the cost of production and a reasonable rate of return. Gas producers continue to get their entitled producer price. RANGARAJAN COMMITTEE: The C Rangarajan Committee on the pricing and taxation regime for petroleum products is learnt to be of the view that the cost-plus method of compensating public sector oil marketing companies is not a suitable model, keeping in view their strong focus on efficiency and globalization. It is also expected to recommend moderate taxation for the sector, better targeting of subsidies at households below the poverty line and gradual price corrections instead of a "one-time" increase. On the issue of subsidies on PDS kerosene and domestic LPG, the committee has underlined the need for carrying out price corrections "to bring down the huge losses being sustained by the oil companies on this front". The committee's hand may have been strengthened due to state governments not voicing any objections to hiking of LPG prices in view of the "limited use of LPG by BPL households". Rangarajan was clear that "there is need for a subsidy which can be targeted at such households and data available with the Planning Commission can be utilized for this purpose". In fact, Rangarajan's comments on taxation at one committee meeting gave a clear hint. In that meeting, he elaborated that "taxation should strike a balance between government revenue and consumer interest. It should not result in extra gains to the exchequer in times of volatile international prices". An insight into the committee's report is also available from the fact that the finance ministry told the committee that export parity pricing, with regard to alternative models for pricing of sensitive petroleum products, "cannot be legally enforced". But it was willing to suggest this methodology to petroleum PSUs. Taking this position, the finance ministry also pitched for a clear and unambiguous policy on tariffs applicable to the petroleum sector

GAS Retailing
There has been a growing concern for availability of primary commercial energy to meet the country‘s growth imperatives. Our economy is growing at a brisk rate of around 9% and is projected to become the 2nd largest economy of the world by 2050 .Such growth requires a corresponding increase in the sources of energy as well as in supply infrastructure. Under these circumstances, the requirement of adequate and reliable energy supply at economic prices for optimal and inclusive growth of the country is a prime concern today. It is in this context that the role of natural gas as a potential source of clean and efficient energy supply becomes important parts of the country and ongoing exploration activities; natural gas is poised to play an important role in the development of our economy GAIL has so far implemented City gas projects in 13 cities independently/through JV route and has formed 8 joint ventures for this purpose. Further, with a planned network expansion of more than 12,000 Kms of high pressure trunk pipelines by 2011-12, GAIL is hopeful that as many as 200 cities are likely to be on city gas distribution map of India in due course connecting the cities and towns falling in the catchment areas of its gas pipelines. Reliance Industries, India's largest company by market capitalization, and GAIL India, the largest transporter and marketer of gas, have sought licences to sell natural gas to households and vehicles across 60 cities in India. ? RIL and GAIL India, through their wholly-owned subsidiaries Reliance Gas Corporation and GAIL Gas, have submitted expressions of interest to the Petroleum and Natural Gas Regulatory Board for cities, including Hyderabad, Chennai, Kolkata, Bangalore, Jhansi and Sonepat. ? setting up gas infrastructure in these cities would involve an investment of around Rs 48,000 crore (around $11.5 billion) over the next 4-5 years ? Reliance Gas has given EoIs for 54 cities and GAIL Gas has shown interest in eight cities.

Natural gas marketing is a relatively new addition to the natural gas industry, beginning in the mid-1980. Prior to the deregulation of the natural gas commodity market and the introduction of open access for everyone to natural gas pipelines, there was no role for natural gas marketers. Producers sold to pipelines, who sold to local distribution companies and other large volume natural gas users. Local distribution companies sold the natural gas purchased from the pipelines to retail end users, including commercial and residential customers. Price regulation at all levels of this supply chain left no place for others to buy and sell natural gas. However, with the newly accessible competitive markets introduced gradually over the past fifteen years, natural gas marketing has become an integral component of the natural gas industry. In fact, the first marketers were a direct result of interstate pipelines attempting to recoup losses associated with long term contracts entered into as a result of the oversupply problems of the early 1980s. Natural gas marketing may be defined as the selling of natural gas. In even looser terms, marketing can be referred to as the process of coordinating, at various levels, the business of bringing natural gas from the wellhead to end-users. The role of natural gas marketers is quite complex, and does not fit exactly into any one spot in the natural gas supply chain. Marketers may be affiliates of producers, pipelines, and local utilities, or may be separate business entities unaffiliated with any other players in the natural gas industry. Marketers, in whatever form, find buyers for natural gas, ensure secure supplies of natural gas in the market, and provide a pathway for natural gas to reach the end-user. It is natural gas marketers that ensure a liquid, transparent market exists for natural gas. Marketing natural gas can include all of the intermediate steps that a particular purchase requires; including arranging transportation, storage, accounting, and basically any other step required to facilitate the sale of natural gas. Essentially, marketers are primarily concerned with selling natural gas, either to resellers (other marketers and distribution companies), or end users. On average, most natural gas can have three to four separate owners before it actually reaches the end-user. In addition to the buying and selling of natural gas, marketer‘s uses their expertise in financial instruments and markets to both reduce their exposure to risks inherent to commodities, and earn money through speculating as to future market movements.

Natural Gas as a Commodity Natural gas is sold as a commodity, much like pork bellies, corn, copper, and oil. The basic characteristic of a commodity is that it is essentially the same product no matter where it is located. Natural gas, after processing, fits this description. Commodity markets are inherently volatile, meaning the price of commodities can change often, and at times drastically. Natural gas is no exception; in fact, it is one of the most volatile commodities currently on the market. The price of natural gas is set by market forces; the buying and selling of the commodity by market players, based on supply and demand, determines the average price of natural gas. There are two distinct markets for natural gas: ? the spot market ? the futures market. Essentially, the spot market is the daily market, where natural gas is bought and sold 'right now'. To get the price of natural gas on a specific day, it is the spot market price that is most informative. The futures market consists of buying and selling natural gas under contract at least one month, and up to 36 months, in advance. For example, under a simplified futures contract, one could enter into an agreement today, for delivery of the physical gas in two months. Natural gas is priced and traded at different locations throughout the country. These locations, referred to as 'market hubs', exist across the country and are located at the intersection of major pipeline systems. There are over 30 major market hubs in the U.S., the principle of which is known as the Henry Hub, located in Louisiana. The futures contracts that are traded on the NYMEX are Henry Hub contracts, meaning they reflect the price of natural gas for physical delivery at this hub. The price at which natural gas trades differs across the major hubs, depending on the supply and demand for natural gas at that particular point. The difference between the Henry Hub price and another hub is

called the location differential. In addition to market hubs, other major pricing locations include 'citygates'. Citygates are the locations at which distribution companies receive gas from a pipeline. Citygates at major metropolitan centers can offer another point at which natural gas is priced. Physical and Financial Trading There are two primary types of natural gas marketing and trading: physical trading and financial trading. Physical natural gas marketing is the more basic type, which involves buying and selling the physical commodity. Financial trading, on the other hand, involves derivatives and sophisticated financial instruments in which the buyer and seller never take physical delivery of the natural gas. Like all commodity markets, the inherent volatility of the price of natural gas requires the use of financial derivatives to hedge against the risk of price movement. Buyers and sellers of natural gas hedge using derivatives to reduce price risk. Speculators, on the other hand, assume greater risk in order to profit off of changes in the price of natural gas. Some marketers who actively buy and sell in either the physical or financial markets are referred to as natural gas 'traders'; trading natural gas on the spot market to earn as high a return as possible, and trading financial derivatives and other complex contracts to either hedge risk associated with this physical trading, or speculate about market movements. Most marketing companies have elaborate trading floors, including televisions and pricing boards providing the traders with as much market information as possible.

The Financial Market In addition to trading physical natural gas, there is a significant market for natural gas derivatives and financial instruments in the United States. In fact, it has been estimated that the value of trading that occurs on the financial market is 10 to 12 times greater than the value of physical natural gas trading.

Derivatives are financial instruments that 'derive' their value from an underlying fundamental; in this case the price of natural gas. Derivatives can range from being quite simple, to being exceedingly complex. Traditionally, most derivatives are traded on the over-the-counter (OTC) market, which is essentially a group of market players interested in exchanging certain derivatives among themselves, as opposed to through a market like the NYMEX. Basic types of derivatives include futures, options, and financial swaps. There are two possible objectives to trading in financial natural gas markets: hedging and speculation. Trading in the physical market involves a certain degree of risk. Price volatility in the natural gas markets can result in financial exposure for marketers and other market players as the price changes over time. Trading financial derivatives can help to mitigate, or 'hedge' this risk. A hedging strategy is created to reduce the risk of losing money. Purchasing homeowner's insurance is a common hedging activity. Similarly, a marketer who plans on selling natural gas in the spot market for the next month may be worried about falling prices, and can use a variety of financial instruments to hedge against the possibility of natural gas being worth less in the future. Countless strategies exist to hedge against price risk in the natural gas market, including natural gas futures, derivatives based on weather conditions to mitigate the risk of weather affecting the supply of natural gas (and thus its market price), etc. To learn more about the basics of hedging in the natural gas market visit the New York Mercantile Exchange. Financial natural gas markets may also be used by market participants who wish to speculate about price movements or related events that may come about in the future. The main difference between speculation and hedging is that the objective of hedging is to reduce risk, whereas the objective of speculation is to take on risk in the hope of earning a financial return. Speculators hope to forecast future events or price movements correctly, and profit through these forecasts using financial derivatives. Trading in the financial markets for

speculative purpose is essentially making an investment in financial markets tied to natural gas, and financial speculators need not have any vested interest in the buying or selling of natural gas itself, only in the inherent underlying value that is represented in financial derivatives. While great profits may be made if the expectations of a speculator prove correct, great losses may also be incurred if these expectations are wrong. While the instruments used for hedging and speculation are the same, the way in which they are used determines whether or not they in fact reduce, or increase, the risk of losing money. Now that some of the basics of the natural gas market have been covered, we can examine the function of natural gas marketers. Natural Gas Marketers Any party who engages in the sale of natural gas can be termed a marketer, however they are usually specialized business entities dedicated solely to transacting in the physical and financial energy markets. It is commonplace for natural gas marketers to be active in a number of energy markets, taking advantage of their knowledge of these markets to diversify their business. Many natural gas marketers are also involved in the marketing of electricity, and in certain instances crude oil. Marketers can be producers of natural gas, pipeline marketing affiliates, distribution utility marketing affiliates, independent marketers, and large volume users of natural gas. A recent study of the origins of natural gas marketers found that 27 percent of the top 30 natural gas marketers in 2000 were entities spun off from interstate pipeline companies. An equal percentage was made up of entities affiliated with local distribution companies. About 30 percent of the top natural gas marketers were originally affiliated with producers, and entities formed from large volume natural gas consumers comprise 6 percent. Finally, independent, newly formed entities represent 10 percent of top natural gas marketers.

Marketing companies, whether affiliated with another member of the natural gas industry or not, can vary in size and the scope of their operations. Some marketing companies may offer a full range of services, marketing numerous forms of energy and financial products, while others may be more limited in their scope. For instance, most marketing firms affiliated with producers do not sell natural gas from third parties; they are more concerned with selling their own production, and hedging to protect their profit margin from these sales. There are basically five different classifications of marketing companies: major nationally integrated marketers, ? producer marketers, ? small geographically focused marketers, ? aggregators, ? Brokers. The major nationally integrated marketers are the 'big players', offering a full range of services, and marketing numerous different products. They operate on a nationwide basis, and have large amounts of capital to support their trading and marketing operations. Producer marketers are those entities generally concerned with selling their own natural gas production, or the production of their affiliated natural gas production company. Smaller marketers target particular geographic areas, and specific natural gas markets. Many marketing entities affiliated with LDCs are of this type, focusing on marketing gas for the geographic area in which their affiliated distributor operates. Aggregators generally gather small volumes from various sources, combine them, and sell the larger volumes for more favorable prices and terms than would be possible selling the smaller volumes separately. Brokers are a unique class of marketers in that they never actually take ownership of any natural gas themselves. They simply act as facilitators, bringing buyers and sellers of natural gas together.

All marketing companies must have, in addition to the core trading group, significant 'backroom' operations. These support staff are responsible for coordinating everything related to the sale and purchase of physical and financial natural gas; including arranging transportation and storage, posting completed transactions, billing, accounting, and any other activity that is required to complete the purchases and sales arranged by the traders. Since marketers generally work with very slim profit margins, the efficiency and effectiveness of these backroom operations can make a large impact on the profitability of the entire marketing operation. In addition to the traders and backroom staff, marketing companies typically have extensive risk management operations. The risk management team is responsible for ensuring that the traders do not expose the marketing company to excessive risk. Top-level management is responsible for setting guidelines and risk limitations for the marketing operations, and it is up to the risk management team to ensure that traders comply with these directives. Risk management operations are quite complex, and rely on complex statistical, mathematical, and financial theory to ensure that risk exposure is kept under control. Most large losses associated with marketing operations occur when risk management policies are ignored or are not enforced within the company itself. The marketing of natural gas is an integral part of the natural gas supply chain. Natural gas marketers ensure that a viable market for natural gas exists at all times. Efficient and effective physical and financial markets are the only way to ensure that a fair and equitable commodity price, reflective of the supply and demand for that commodity, is maintained.

Guide to Retail Marketing The right gas retail marketing strategies are essential for fuel retail business. Effective retail marketing strategies are essential for every type of fuel retailer. Retail marketing begins with brand recognition. You create brand recognition through advertising, design and the media. It is important to get your logo, name and slogan out in front of your potential customers' eyes on a frequent basis. Whether you own a chain of gas stations or a single fuel retail shop, a great retail marketing plan will ensure the financial success of your business. From online marketing via a website to media advertisements, you need a retail gas marketing plan for your business. An effective plan includes direct and indirect marketing strategies. When determining the elements of retailer marketing plan, consider the following tips: 1. Stand out from the crowd and offer promotions and technological advances not found at other service stations. 2. Know your audience and the best way to connect with them as a gas retailer, whether it is on the Internet or via print, television or other forms of advertising. 3. Offer an incentive, such as a special credit card for your gas station or gear that has your business‘ name and logo.

Action Steps The best contacts and resources to help to get it done ? Use the latest technology available for service stations Customers look for convenience and entertainment in a fuel retailer. Keep retail gas marketing plan up to date by including the latest and greatest in fuel retail technology, it is essential to attract and retain customers for business.

? Boost retail gas marketing plan with direct advertising Direct marketing targets the appropriate customers for your business. These marketing campaigns operate via three main sources: postal mail, email and text messaging. Each method is effective in keeping your company's name and logo in front of your customers. ? Include promotional items in your gas retail marketing plan Promotions grab the attention of children and adults of all ages. Kids are sure to drag their parents to gas station if you offer fun promotional items, and some adults will frequent your retail business for the right giveaways. The best promotional items attract business and keep your company name in front of current and potential customers. Offer promotional items inside your gas stations or convenience stores. Customers are more likely to come in for the freebie and purchase something else to go with it. Full service gas stations have a built-in retail marketing plan in that they do all the work for their customers; many are set up so customers don't even have to leave their car to pay.

GAS Retail Strategy

The energy market is fast paced, and is difficult to follow and comprehend. We arm our customers with useful and practical guidance that leads to transactions with less risk and more price certainty. Fixed Price - a flat pricing option set for a specified period of time and for a specific volume for both the commodity and transportation components. Fixed Basis plus NYMEX - a fixed transportation component for a specified period and volume, combined with a floating NYMEX (commodity portion) which will settle on a monthly interval according to the New York Mercantile Exchange‘s Natural Gas (NG) contract settlement price. Indexed Products - a published price based on a survey for a relative delivery location. The published price will occur daily or monthly depending on the named source. The Index product may be converted to a Fixed Price or Fixed Basis plus NYMEX for forward months. Alternate Fuels and Dual-Fuel Opportunities- Provide alternate fuels to replace the higher-price commodity when the opportunity is present in the market. Also offer Recall Incentives that can be structured into a transaction upfront, or leave exposure to market open to potentially capture more value as extreme market conditions evolve The gas industry seeks to play an important role in the growth of the energy sector in India. Hydrocarbon Vision projects a natural gas demand of 313 Mcmd and 391 Mcmd by the years 2011-12 and 2024-25, respectively, from the existing demand and supply of 115 Mcmd and 65 Mcmd, respectively.

Natural Gas is primarily used in gas-based power projects (utility and captive) and also by the fertilizer sector as feedstock in the manufacturing process. Natural gas is being used as fuel by the transport sector and has major usage in the industrial sector as eco friendly fuel. At present, gas based power projects account for 11% of power generation and are expected double their share in energy supply by the year 2011-12. The Government intends promoting Liquefied Natural Gas (LNG) imports for consumption in power projects. The U.S. gasoline marketing sector is marked by a high degree of competition. Refiners use a variety of distribution methods and channels to bring gasoline to consumers in order to compete in this marketplace. They can, for example, own and operate the retail outlets themselves (company operated outlets), or they can franchise the outlet to an independent dealer and directly supply it with gasoline, or they can use a ?jobber,? a person or firm who gains the right to franchise the brand in a particular area. These marketing strategies, with their different levels of control and investment by refiners and associated pricing practices, can come into conflict with each other when they coexist in the same marketplace. As a consequence, critics periodically call for the elimination of some of these marketing strategies and practices. Among them, critics claim refiner restrictions on where jobbers can sell branded gasoline (referred to as ?non-price vertical restraints?) reduces competition. Refiners have also been criticized for zone pricing. This is the practice whereby refiners set uniform wholesale prices and supply branded gasoline directly to their companyoperated and franchised dealer stations within a small but distinct geographic area called a ?price zone.? Research shows that the elimination of zone pricing would result in higher average prices for consumer‘s .Similarly, eliminating the ability of refiners to restrict where their brand can be distributed would likely reduce their investments in distribution outlets and harm consumers. Thus, from a competitive viewpoint and a consumer perspective, calls for the elimination of non-price vertical restraints and zone pricing in the gasoline marketing sector are misplaced. These strategies are the result of competition between various forms of distribution in gasoline marketing. This competition promotes efficiency, which benefits consumers by bringing product to market for less.

Improving retail performance in a competitive environment:
Operational Execution: ? Maintain # 1 share of urban market position. ? Leverage products, technology and best-in-class operating models. Manage Cost: ? Focus on controllable and operating model improvements. ? Reduce pumping costs and wholesale handling expenses. Enhance Revenue: ? Margin improvement and develop profitable categories. ? Grow high value sales and competitive position

MARKETING STRATEGIES IN GAS RETAILING:
Grow Volume: ? Invest in green field sites ? Exploit card technology advantage ? Commercial road transport ? Diesel demand Grow NPR (Non-Petroleum Revenue): ? Build C-Stores toward a destination convenience offer ? Reposition car wash for revenue growth ? Refine and judiciously expand new Neighbours store concept ? Focus on gross margin growth ? Broaden capabilities

Manage Expenses: ? Retail licensee model evolution ? Leverage Petro-Points program ? Optimize resources

Marketing: Strategic Growth: In retail innovative offerings are key. ? Food service ? Logistics ? Information technology ? Car wash technical skills Highway Strategy ? Food service ? Integration In, gas retailing one should continue to: ? focus on managing controllable expenses ? innovatively leverage our brand and technology Grow Retail by: ? developing non-petroleum revenue opportunities ? judiciously expand Neighbors into larger Canadian urban markets ? Glide car wash offer ? Expanding diesel network while maintaining best-in-class position among the majors in the Controlled channel. ? Business Customer Strategies In today's dynamic business and regulatory environment, utilities are striving to better understand their customers and to consider their customers' perspectives in decisions regarding products and services, marketing strategies, program design, and effective customer service. At the same time, most electric and

natural gas utilities are under increasing pressure to cut costs, build revenue, and enhance customer satisfaction. This service should address the following topics: ? Pricing, rate, and billing options ? Energy management, including demand response, energy efficiency, and conservation programs ? Communication approaches, such as online self-service, Web site tools, and in-premise metering and information displays ? Other timely topics, such as likelihood to adopt new technologies, opinions about environmental issues, and corporate image Clubbing petrol with LPG: To target domestic customer‘s bouquet of petrol and LPG can be offered to middle income group consumers. It could be major initiative for building brand value and also for brand recall. Major discounts and reward schemes can also be offered for these customers. Collaboration with OEM’s /authorized dealers of automobiles: OEM‘s (Original Equipment Manufacture), automobile manufacturers and dealers, etc will be another very good strategy .such strategy has been implemented very successfully in FMCG products retailing.

Customer Service: Increase customer retention, facilitate acquisition. ? Expand profitable customer relationships ? Continuously deliver relevant high quality experience to customer ? Continually know more about customers answers, communicate it with the organization

? Help deliver the products as customer demands ? Increase customer equity ? Improve cost management ? Quality assurance

Program Management: Several petroleum companies retain in alliances to manage environmental services for retail and distribution assets over broad geographic areas. Services typically include due diligence, integrated site closure, and regulatory compliance—often tied to various state reimbursements fund programs. These programs also facilitate development of ?continuous improvement programs? that address a variety of strategic and tactical issues. Major retail petroleum
companies extensively perform environmental due diligence on large asset portfolios. Projects range from single sites to portfolios of 100-plus properties. Due diligence services at retail sites typically include record review, site investigation, historical research, construction inspection, and report preparation.
?

Site Characterization and Risk Assessment :

For retail petroleum clients, perform environmental site and risk assessments. Services include soil and groundwater sampling, installation of groundwater monitoring wells, aquifer testing, geotechnical testing, interpretation and reporting, and development of health and safety plans.
?

Remediation and Regulatory Closure :

Retail petroleum facilities face special regulatory challenges including: health and safety precautions, utility and subsurface conduit clearances, offsite impacts, vapor intrusion, and various miscellaneous disruptions to station operations. These services include UST removal, dewatering activities, soil excavation, groundwater extraction/treatment, soil vapor extraction, dual-phase extraction, bioventing, and air sparging.

?

Compliance Management Built on years of service to major retail petroleum clients, practice to assist the retail petroleum industry with regulatory compliance. Developed regulatory compliance tools to support these operations, including: spill prevention, control, and countermeasure plans; storm water management plans; integrated contingency plans; air, water, waste permits; and environmental compliance evaluations/audits. We have worked with several major oil companies to develop compliance programs for retail petroleum .

CHANGING INFRASTRUCTURE New generation retail outlets provide all sorts of benefits to the consumers along with filling of fuel. With the emergence of organized retailing in the country and a growing demand from consumers for a superior shopping experience, Convenience Retailing has emerged as a key business area for petroleum companies given their wide retail presence, existing customer base and strategically located sites. Convenience need gaps have been felt in various fields and research has shown that the urban consumer today seeks convenience in shopping for their basic requirements so that their precious time is reserved for more fruitful pursuits. Petrol retail outlets provide the right framework for setting up convenience retail chains where the consumer has the opportunity of combining shopping with the fuelling occasion. Petro retail Outlets nowadays are equipped with state-of-the-art infrastructure, including Multi-Product Dispensers to pre-set price and quantity of fuel and Electronic Air Gauges facilitating precise inflation of tiers. Attractive Canopies are suitably designed to provide shelter and adequate lighting of the forecourt at most Retail Outlets. On the non-fuel front also, oil marketing companies have introduced various services including convenience stores, food services, and Ancillary services. For e.g. BPCL has introduced 'In & Out‘, these malls offer the customer a broad range of facilities and brands to choose from. ATM's, Cybercafé, Courier services, Laundry, Photo Studio, Music, Fast Food, Greeting Cards, Courier Services, Bill Payments, Movies / Entertainment Tickets, etc. have made Bharat Petroleum's Retail Outlets a happening place and indeed an rewarding experience for consumers. Similarly other companies have their own convenience stores and other services like free air, free vehicle servicing etc. which they provide to their consumers to attract and retain them.

UPGRADING TECHNOLOGIES The companies are also going in for various innovative technologies especially using Information Technology for various E-Retail solutions at their ROs. Some of these include high quality dispensing units, intensive use of RFID (Remote frequency identification device), etc. Drivers for ?Emerging Technology? in Petroleum Retail are : ? Efficient Customer Service & Enhanced Level of Customer Assurance. ? Compliance to stringent Environment, Health & Safety (EHS) standards. ? Need to fuel vehicles using ?alternate fuels? ? Miscellaneous. ? Cost Reduction ? Ease of Construction / Maintenance. ? Better Control over Site Operation

Benefits to consumers include:

? Assurance of fuel quality and the amount being dispensed ? The ability to use a variety of payment methods, such as cash, debit or credit card, or loyalty card, at the pump ? Cashless transactions and self-service operations ? An extension of the automation system that could also control operations of convenience stores located at retail outlets, car washes and other value-added services they provide.

Benefits to oil companies include:

? Improved customer retention and an increase in market share as a result of greater customer loyalty. ? The ability to offer various loyalty programs to fleet owners. ? Improvement in retail station operational efficiency and asset utilization. ? The ability to study demand of products and loads at various outlets to make tactical and strategic marketing decisions regarding petroleum retailing. ? Greater visibility into the outlet operations. ? Access to online data that will help monitor and prevent fraudulent practices.

NON- FUEL INITIATIVES One of the more visible transformations in the retail business of auto fuels is the recognition by the oil companies that non-fuel activities could be an important source of revenue at their retail outlets. So we have convenience stores, fast food centers and other such amenities finding a place at petrol stations. This is a very welcome change. However, the possibilities are immense and efforts in this direction too slow and limited. The guidelines issued by the Ministry of Road Transport and Highways stipulate that the petrol stations should be a composite rest area for the highway users and provide all the products and services that a highway user may require under one roof. These could range from convenient stores, restaurants, cyber cafes etc. for the car users to dhabas, dormitories, dhobi services etc. for the truckers. Realizing the importance of a greater understanding of consumers‘ needs and consistent with its core objective of continuously adding value to it‘s customers through innovative

means, Bharat Petroleum has launched its convenience retailing initiative under the “In&Out” brand. Bharat Petroleum is the 2nd largest oil marketing company in the country with over 6000 retail outlets spread across the length and breadth of the country. The In&Out chain of convenience stores is being set up in the urban markets at strategically located retail outlet sites with high customer footfalls. The ?In & Out? store at Bharat Petroleum petrol pumps, which was launched in 2001, offers a convenience proposition where a number of typical household errands are aggregated under one roof for the benefit of the customers. Today there are more than 240 In&Out stores across India, which bring in unmatched convenience at the petrol station. Strategic alliances have been formed with major brand owners and retailers in the country to further strengthen the convenience proposition.

Pictorial view of The In & Out store of BPCL Similarly

to power up its growth strategy, IOCL is looking into getting into altogether new

areas, non-fuel retailing being one of them. It plans to start fuel services at shopping malls. For this, it has already had discussions with the Ansals and Kishore Biyani‘s Future Group. That should be up and running soon. IOC‘s retail initiative is to beef up the Convenio stores (they sell a wide range of packaged foods, and hot and cold drinks) that it had set up at

select petrol pumps a few years ago. It has hired retail consultancy Technopak to help formulate a strategy to redo the outlets.
Forecourt activities by Indian Oil Companies Indian Oil Corporation Limited : ? ? ? ? Entered into tie-ups with Akbarally‘s for convenience stores, Apollo Hospitals for pharmacies, Dominos Pizza for pizza outlets and ICICI Bank, Centurion Bank and Bank of Punjab for ATMs. Formed an alliance with MTNL to enable its customers to make their payments at select outlets in Delhi and Mumbai. Introduced the first Jubilee retail outlet along Highways with numerous services such as first aid area, mini mall with post office and banking facilities and spare part retail shops. Introduced the ?Top Gear‘ outlets featuring fast food restaurants, pharmacies and auto car wash facilities.

Hindustan Petroleum Corporation Limited : ? ? ? ? ? ? Entered into tie-ups with Cafe Coffee Day, Baskin Robbins, Subway, Crossword, Gitanjali Gems Limited and McDonalds to set up outlets at select locations. Introduced several convenience facilities at their outlets such as HP Speed Mart (Convenience Store) ATM‘s Automatic Car Wash Commissioned India‘s first public access Internet kiosk

Bharat Petroleum Corporation Limited ? ? ? Launched convenience retail initiative under ?In&Out‘ brand offering a wide range of services. Entered into tie-ups with McDonalds, Cafe Coffee Day, Planet M and Music World to set up outlets at select locations. Tied up with Cross Roads (Car helpline) to offer customers value added services such as discounts on lubricants and engine oil and free petro cards.

CHANGING CONSUMER EXPECTATIONS The consumers nowadays are the ultimate drivers forcing a company to make its operations more efficient and effective. In this era of cut throat competition, the companies are doing their best to attract new and retain old customers. But the expectations of the consumers have been witnessing a never stopping scenario. The next generation petro-retailer will adopt a consumer centric organizational model aligned to a distinct value proposition. Q & Q still are the major forces to influence a customer‘s choice of a fuel retail outlet. The companies should thus build on strategies to ensure them of the Q & Q of its fuel. The consumer also demands a higher level of product delivery and customer service. That‘s why companies have come up with various technology driven solutions to make the customer stay at the retail outlet fast and satisfying. The companies have come up various ideas like automated dispensing units, Smart cards, etc. Quality is again ascertained by the company in terms of branded fuels assuring the consumer of improved and efficient vehicle performance. Oil companies are working towards optimizing their entire supply chain eg. FedEx‘s agreement with HPCL mentioned in the previous chapter. The customer has been becoming more and more conscious of fuel efficiency and engine performance. In this respect, the oil cos. convince the customers to buy branded/premium fuels which are meant for better engine performance and other benefits to the consumers. Also cos. Have come up with other recreational facilities especially for outlets at the highways like dhabas, onestop trucker shops (BPCL), etc.To better service the customers, the oil cos. also give them other facilities like clean & Hygienic place to eat & wash, rest & recreation for highway travel, allied facilities like ATMs, Cyber

cafes, courier services, convenience stores etc. Thus we see that the companies are now changing their outlook and strategy just to please the customer. GOVERNMENT INITIATIVES The biggest initiative taken by the Government includes allowing the entry of the private player like Reliance,Essar, Shell,etc. in the downstream retail sector. A level playing field is an absolutely essential requirement for players to survive in any competitive market. A competitive market makes the industry efficient and effective. The expert committee report on the integrated energy policy makes the following recommendation for a competitive environment across the energy sectors: ?Apart from pricing policies, an environment that allows multiple players in each element of the energy value chain to compete under transparent and level terms is essential in realizing efficiency gain within the energy sector?. The Indian petroleum industry pursued the policy of liberalization in the year 2002 and subsequently private players made huge investments along all segments of the petroleum value chain. Private sector investment in retail marketing amounted to over Rs 7000 crores (appx. $ 1.56 billion), including investment by dealers and transporters. Private sector presence in retail marketing has led to multifarious benefits to stakeholders. It has created direct and indirect employment opportunities for more than 70,000 people. Private players have introduced better technology, aimed at enhancing customer satisfaction by delivering unadulterated fuel and better service quality.These efforts were severely affected after the announcement of oil bonds to PSUs. The Govt. is extending a subsidy of Rs. 3.39/ litre on MS and Rs 5.77/ litre on HSD to PSUs. As a result, private players have shut down assets which delivered substantial value to customers. Common carrier infrastructure and product sharing may be actively considered by the regulator. Market based pricing is under consideration as well.

THE PAST………. AND THE PRESENT (A Pictorial View)

THE PAST

THE
PRESENT

CONVENIENCE STORES

The concept of convenience stores has not as yet taken off in India. Most consumers in India today are unwilling to pay the price premiums required to support the organized convenience store business model; the ?MRP‘ regime also restricts the c-store operators‘ ability to charge a premium for the higher service levels that it may provide. Coupled with this are the difficulties in operating a profitable convenience store business model in India where the supply chain for most products remains highly fragmented and inefficient.

The critical issue is to develop a product assortment that would drive both traffic and consumer purchases; this being a function of the consumer group which the brand targets. For example, for the ?Routine Chore Doer‘, the product offer could hinge on fresh fruits and vegetables, e.g. a ?Mother Dairy‘ vegetable stall at every petrol pump. Operating a c-store requires an entirely different set of capabilities from petroleum retailing---- sourcing and supply chain management are critical skills for a c-store operator and may need to be outsourced by Indian petroleum marketers as they build other consumer facing skills. A reduced risk model could be an alliance with an established retail chain e.g. Foodworld or Subhiksha which would provide the required skill synergies and also ensure immediate consumer credibility and trials. This model has worked well in more mature markets where consumers require greater choice and assortment mix. It is also important that the petroleum c-store operator develop a strategy that differentiates its convenience store from other similar stores as well as the traditional retailer. There are multiple opportunities for differentiation in the convenience store market; the key is to make a consumer-based choice.

For an international brand entering the market in India, targeting the ?Prestige seeker‘ consumer segment, the ?smart shop‘ ---- clean, well-lit, wide aisles----may offer a differentiated value proposition. A convenience store operator can select from eight levers which provide a basis for differentiation depending on the needs of the target consumer segments.

price store image

Basis of differentiation

food

convenience

service

distribution

Petro-retailers in India will need to adapt global business models to suit the local environment
Source: AT Kearney

FOOD SERVICE This is an emerging sector in the non-petroleum range of products from sandwiches to full branded fast food operations. The critical issues are: what services should be offered, and how should they be provided? In the U.S., food prepared on-site for take-away is a significant category of foodservice sales and caters to the habit of grazing i.e. eating ?on-

the-move‘. In India, eating-out is more of a social event, and thus the platform of ?food on the go‘ maybe less relevant. Convenience stores are likely to be ?destinations‘ and not ?traffic interceptors‘ in India. Therefore, full- fledged fast food operations could offer greater appeal at petroleum stations. The exact nature of food service provided is a function of the target consumer; a Barista coffee pub appeals to a very different consumer type from a consumer, but a Haldirams and a McDonalds may be complementary. An interesting option could be to capitalise on the growth of organised Indian fast food retailing, using relatively well located and spacious real estate (petrol stations) to establish ?chaat‘corners jointly with brands such as Haldirams, particularly in the smaller towns. Petroleum marketers can adopt a number of operating models for food service. From an alliance with an established brand such as McDonald‘s to the retailer's own brand/label. Factors to be considered in deciding which food service model to adopt: 1. Space available (including parking) 2. Labour implications 3. Skills/ resource requirements 4. Consumer demographics/psychographics 5. Competitive environment. Branded food service offers the benefit of immediate brand recognition by consumers. It also provides assurance of quality, freshness and consistency. In India, where the concept of food service at petroleum stations itself is new, an alliance or joint venture is likely to be the most suitable operating model. ?Chinese van‘

ANCILLARY SERVICES Ancillary services complement regular convenience stores and food service by providing additional reasons for consumers to visit the non-fuel area of the stations while increasing the retailers‘ share of the consumers‘ wallet on each visit. The range of ancillary services that can be sold through petroleum stations is large, and includes ATMs, insurance sales agents, courier services, pre-paid card sales, laundry services, car wash, newspaper and magazine stand, and even lotteries. The key question is how much would consumers be willing to pay for these services? Car wash services are currently available through the unorganized sector for as little as Rs.150 per month at one‘s doorstep; can a petrol service station compete profitably with this? There may be a latent owners. Key success factors in value added product/services based differentiation strategies : ? Manage barriers to trial and usage, such as consumer‘ perceptions of differentials in price, selection and service. ? Customize the assortment and offering to local market conditions. ? Maintain low operating costs and tight inventory control. ? Manage suppliers and optimize sourcing. ? Build consumer loyalty through CRM, loyalty programs and incentives. PRICE BASED DIFFERENTIATION This is an obvious differentiator for any product or service, and in markets such as the USA where as many as 56% of petroleum buyers cite price as a reason for selecting their brand. It is a powerful platform for differentiation. In India, where there are a large number of ?bargain hunters‘, a price-based strategy could be potentially very powerful. The challenge of such a strategy however, is to maintain uniqueness and sustainability. When a demand for laundry services among taxi, truck and auto drivers but not among urban private car

number of petroleum retailers adopt a low price positioning, other factors such associated offerings to ensure customer retention become critical.

as the

Internationally, there are 2 broad categories of petroretailers which differentiate themselves based on price– the grocery retailers selling petroleum and the high volume, low margin convenience store retailer.

GROCERY RETAILING Hypermarket retailers are rapidly gaining share of the fuel market in the West. In the USA, hypermarkets have 3.3% of the market value, and in Europe, 5.2% of the number of petroleum retailing locations. Hypermarkets discount petroleum by as much as 6-12% and are projected to account for over 16% of the U.S. market by 2005. These retailers use fuel sales as a loss leader to attract consumer traffic to their stores?. In India, hypermarket operations are still nascent and unlikely to be a near term threat to petroleum marketers. However the likely success of the hypermarket retail model in India will pose a longer term threat to petroretailers here.

HIGH VOLUME, LOW MARGIN OPERATING MODEL Exemplified by companies such as QuikTrip and RaceTrac in the U.S., these retailers have developed operating models building on the high price elasticity in petroleum retailing. Selling petroleum at prices that are typically 5% less than the average market price, sales companies such as QuikTrip are able to achieve as much as 75% higher

throughputs through their stations. Although their margins are as much as 40% lower than the majors, their overall profitability is high. As in the hypermarket model, they use the higher traffic through their stations to drive sales in their convenience stores, which also

typically sell at discounts to the market. The challenge to such a strategy in the Indian context is that non-fuel sales are currently so low that the discount retailers would be unable to boost overall profitability of their petrol stations sufficiently through this route. Like QuikTrip, discount petroleum marketers in India would also need to develop other consumer hooks such as ?consumer experience‘ to build consumer loyalty.

Key success factors for price based differentiation strategies:

? Ability to self more profitable products/services to subsidize lower margin 'loss leader' petroleum sales. ? High degree of consumer price elasticity which ensures that lower margins are compensated through greater volumes ? Supply chain optimization and sourcing efficiencies to deliver lower priced fuel consistently ? Non-price based strategies to build consumer loyalty. For example, service experience.

CONSUMER EXPERIENCE BASED DIFFERENTIATION Petroleum marketing has a strong service element which can be used as a powerful lever for differentiation, especially in a commodity market environment. The consumer experience, or ?Moment of Truth‘, as it is also called, has been very successfully used by petroleum brands internationally to protect market share and to garner loyalty. A leading Oil and Gas company in Canada has clearly differentiated its consumer experience by ensuring warm and caring attitude towards its consumers. It builds ?environmental consciousness? and ?community orientation? in its overall image through sponsorships and theme creation. The company also continuously improves and up-dates the retail ambience through systematic renovation at their premises. In USA, Quiktrip also uses consumer experience to reinforce its price based strategy.

Surveys of Quiktrip consumers show extremely high value attached to their overall experience at the pump premises. While Quiktrip ensures a warm and congenial experience for its consumers by recruiting and grooming highly motivated individuals, it also strikes the right chord with its consumers by storing their favourite drinks and snacks. Quiktrip management believes in reflecting an image of ?we do everything right? in all its direct and indirect consumer interaction. Technology can also be used to greatly enhance the consumer experience. Many petroleum majors have adopted latest technology to ensure that consumers have a fast and hassle free service. These are mainly in terms of the ?swipe at pump? facilities, ?at pump ordering? of non-fuel items through wireless microphones, customized electronic reports for corporate fleet programs etc. Mobil Speedpass is a good example of successful differentiation through technology-enabled services. (Mobil Speedpass Automatic miniature radio transponders attached to key chain or affixed to vehicles‘ rear window. Transponder automatically transmits unique, secure ten digits that are recognized by an electronic system located at the pump. These electronic devices

enable automatic charging of fuel purchases to a designate credit or check card. All these are at no direct or indirect cost to consumers). In India, where many shoppers are highly relationship oriented, personalization of the consumer experience could offer potential for differentiation and maintaining loyalty. Consumers attach significant importance to the ?experience? within the premises in terms of quick service, attendant disposition and overall ambience in choosing their petrol pumps. Most have a stronger loyalty to the specific station than the petroleum brand. Developing a brand offering for the ?trust seeker‘ with a promise of ?We make you feel special? could be a powerful strategy as long as the retailer is able to ensure consistency of delivery across locations and over time. An experience based differentiation strategy could be particularly relevant to existing petroleum retailers in India, who would benefit from strengthening of their bond with the existing consumer franchise, thereby increasing the barriers to entry for new players. Key success factors in service based differentiation strategies: ? Ensure quality of the human interface through people selection, training and development. ? Ensure consistency of service delivery across locations and over time. ? Systemize the consumer experience delivery process. ? Establish service recovery procedures. ? Use technology to enable better consumer experience.

QUALITY & QUANTITY BASED DIFFERENTIATION Customer are still cynical about Q&Q, however they would like to take it for granted that the fuel provided to them is of utmost quality and perfect quantity. A large base of ?trust seeker‘ segment exists who would be loyal to a company for a long time if they are satisfied with the Quality and quantity provided to them. Challenges are organization wide implementation of checks & balances and communication of the same to customers. Companies are coming out with various anti-adulteration measures to give the customers the best quality of fuel.
•Replenishment system linked to stock monitoring at RO •Product filling by bulk meters and automated process

Terminal

Transportation

•Comprehensive sealing mechanism •Vehicle monitoring and tracking system (telematics)

Retail Outlet

•Automated system for tank gauging and wet-stock reconciliation •Exception reports for online monitoring of stocks •Remote diagnostics •Accurate preset premix deliveries to 2/3 wheelers •Electronic calibration and tracking of metering assembly of dispensing unit

Customer

Q & Q – A systems Approach

One recent example of how seriously companies are working in this matter is the ?Revolutionary Marker System to eliminate adulteration of motor fuels‘. The new generation marker system will also ensure quality to customers of diesel and petrol. The adulteration of diesel and petrol with marker-blended kerosene would immediately show-up when tested using a simple kit through a simple visual check. The oil industry has now become vigilant against the unscrupulous-habitual adulterators so that best products and services are provided to the consumers.

The new marker system being introduced for the first time by the Oil Industry in alignment with the international practices is expected to curb to a large extent auto fuel adulteration using kerosene. Adulteration in auto fuels is essentially driven by the huge price difference between auto fuels like petrol & diesel and potential adulterants like kerosene, Naphtha and other industrial aromatic solvents. In the first phase, the marker will be introduced in the entire quantity of kerosene that is supplied by Oil Marketing Companies (OMCs). Based on examination by Petroleum Planning & Analysis Cell along with Oil Marketing Companies, the marker system developed by M/s Authentix was found to meet the various characteristics and requirements identified by the Oil Industry. The dosing of markers in kerosene will now be carried out at Oil Terminals/Depots of OMCs. The revolutionary marker will provide a new thrust to the oil companies, which have been facing the scourge of adulteration for a long time now. Field trials using the marker were initially conducted successfully by the oil industry, after which it is now slated for an all-India launch. All kerosene supplied by OMCs will now be marked at the Terminals/Depots of the oil companies. In the first instance, test kits will be provided to the field officers of OMCs to enable them to check for adulteration of auto fuels during their inspections. The tests are simple and it is possible to visually detect even small traces of kerosene e.g. 1% in auto fuels using a simple but highly accurate and effective test kit. Speaking about other measures to check adulteration Shri Murli Deora informed that the Petroleum Ministry has been taking several steps to check adulteration of auto fuels. Periodic monitoring undertaken by the OMCs in conjunction with the State Government authorities and the tracking of Tank Trucks through Global Positioning System are some of the recent initiatives. The Oil Marketing Companies have also launched automated facilities in their retail outlets with tank level sensors and digital dispensers connected to a server that monitors that quantity of the product stored and dispensed through the nozzles. With the help of cutting edge technology, the oil companies now control the entire supply chain

from Oil Terminals to Retail Outlets. The various IT-enabled initiatives are therefore aimed at securing product transfer between the supply locations and petrol stations. It covers the entire retail outlet forecourt & back office operations, including monitoring through electronic gauges, temperature and density measurement through sensors, besides dispenser unit controls that are linked to an automatic bill printing facility. The nefarious elements, which indulge in adulteration, need to be tackled by efficient coordination with the policing authorities at both the Centre and state Government levels.

NETWORK PLANNING An optimized network is needed with enhanced capital productivity, high throughput per RO & high market effectiveness. Network planning is required to maximize the returns from the existing retail infrastructure and to plan future investments and other changes that maintain or improve that return." By: ? Implementation of Strategic Plans ? Acquisition/rationalisation/rebuild/conversion ? Improved decision making ? Improving competitive advantage ? Managing change The journey of network planning starts with site classification, competition assessment (no.of competitors in a particular area), individual site strategy depending on the kind of consumers coming in, proposal evaluation working on financial, technical, marketing and economic feasibility of a proposed plan, network optimization (COCO,CODO,DODO,DOCO,etc. procurement, etc.), performance measurement with regular and sudden audits. The strategy for each location, ranging from investment to disposal is driven by this analysis. The retail strategy must govern the entire network planning process. The main issues to be considered include maximizing volume, profitability, control, non-fuel activities, optimization - (operational improvements), and investment required. Network planning tools involve people, information, communication techniques, benchmarking techniques, performance potential of the employees and the site selected, economic evaluation of the proposal, implementation of the plan, audit and evaluation. To sum it up, continual development and integration is the key.

SUPPLY CHAIN OPTIMIZATION The main focus here is the least cost of placement with no stock outs. For this the companies use various supply chain tools like, complex demand forecasting models, automated inventory monitoring, scheduling tools, tanker capacity Utilization tools, vehicle tracking system/Telematics, integrated supply chain solutions, end to end Q&Q implementation, etc. Supply chain starts before physical distribution. It involves procuring the right inputs (raw materials, components and capital equipment), converting them efficiently into finished products, and dispatching them to final destinations. The supply chain view sees markets as destination points, and amounts to a linear view of the flow. A broader view sees a company at the center of a value network that includes its suppliers and its suppliers‘ suppliers and its immediate customers and their end customers. The company should first think of the target market and then design the supply chain backward from that point. The following strategic and competitive areas can be used to their full advantage if a supply chain management system is properly implemented : ? Fulfillment – ? Ensuring the right quantity of parts for production or products for sale arrive at the right time.? This is enabled through efficient communication, ensuring that orders be placed with the appropriate time available to be filled. ? Logistics – ?Keeping the cost of transporting materials as low as possible consistent with safe and reliable delivery.? Here the supply chain enables a company to have constant contact with its distribution team. Efficient vehicle tracking systems have been developed by companies in this respect.

? Production – ?Ensuring production lines function smoothly because high-quality parts are available when needed.? Production can run smoothly as a result of fulfillment and logistics being implemented correctly. ? Revenue and Profit – ?Ensuring no sales are lost because shelves are empty.? Managing the supply chain improves a company‘s flexibility to respond to unforeseen changes in demand and supply. ? Costs - ?Keeping the cost of purchased parts and products at acceptable levels.? Supply chain management reduces costs by increasing inventory turnover on the shop floor and in the warehouse. ? Cooperation – ?Cooperation among supply chain partners ensures mutual success.? Collaborative planning, forecasting and replenishment (CPFR) is a longer-term commitment, joint work on quality, and support by the buyer of the supplier‘s managerial, technological and capacity development. This relationship allows a company to have access to current, reliable information, obtain lower inventory levels, cut lead times, enhance product quality, improve forecasting accuracy, and ultimately improve customer service and overall profits.

CASES BRITISH GAS (UK)
In the early 1900s the gas market in the United Kingdom was mainly run by county councils and small private firms. In 1948 that all changed with The Gas Act 1948 brought in by Clement Attlee's Labour government. The act nationalized the UK gas industry and 1062 privately owned and municipal gas companies were merged into twelve Area Gas Boards each a separate body with its own management structure. Each Area Board was divided into geographical groups or divisions which were often further divided into smaller districts. These boards simply became known as the "Gas Board", a term people still use when referring to British Gas. During the 1950s the use of gas increased greatly with British Gas creating high street showrooms to promote the use of gas. By the 1960s the UK was importing 300,000 tons of liquefied natural gas from Africa every year. In January 1973, British Gas was restructured by the Gas Act 1972 which centralized the company creating the British Gas Corporation and turning the area boards into regions of the new company. The Gas Act 1986 led to the privatization of the company, and on 8 December 1986 its shares floated on the London stock market. In the hope of encouraging individuals to become shareholders, the offer was intensely advertised with the "If you see Sid, tell him" campaign. The initial public offering of 135p per share valued the company at £9 billion, the highest equity offering ever at the time. In preparation for the opening of the gas supply markets to competition in 1996, British Gas plc had to go through a major restructuring which separated the company into five divisions.
? ? ? ? ?

Public Gas Supply (Domestic gas supply). Contract Trading (Business Supply) Transportation and Storage later named Transco (Transporting and storage of gas). Service and Installation (Later named Services). Retail (Later named Energy Centres).

British Gas is defined ?As the largest energy company? in the UK, with over 15 million customers and an extensive product range. British Gas continues to be the first choice for customers home needs. British Gas is the main gas company in the UK. British Gas is committed to providing an exemplary service; British Gas launched its online home, house.co.uk, in 2001 making access to its products and services even easier. Designed to be the leading website for home needs in the UK, house.co.uk aims to provide an online home management service designed to help customers run their homes more smoothly. It is true that the UK energy market is indeed a highly competitive market for electricity and GAS, and one cannot ignore the fact that there exist energy deal comparison sites such as uSwitch and EnergyLinx, but as British Gas are the leading energy supply company they are confident to win against the competition by offering a better deal to the customer . British Gas products and services: Gas and electricity It supply both gas and electricity to domestic customers across Britain. With no standing charges, online account management and its new free evening and weekend telephone calls package benefits the customer by providing excellent customer service and value for money pricing. As well as being a leading provider of gas and electricity, British Gas also offers Homecare, which is a maintenance contract to look after the essential parts of the home. For example the gas Boiler and Controls, Central heating, plumbing and drains, and electrics. British Gas are the experts on Central heating systems, whether customer is thinking of installing gas central heating or would like to improve existing system, British Gas can offer the products, installation service and expert advice to suit ones needs. Extra Services by British Gas: As well as providing customers with a choice of products they can suit to their lifestyle, it is committed to providing the exemplary service expected from British Gas, including several exclusive online services: ? Manage your bills online – customers can experience the convenience of viewing and paying for bills online at any time of the day or night. What‘s more, if they

choose paperless billing, they‘ll save time, receive a discount and help the environment. ? Moving home – it currently offer a dedicated service to assist British Gas home movers. As part of the service, home movers can make use of just one contact point to handle all enquiries. With one call customers can update each and every one of their British Gas accounts, from gas to burglar alarm support. British Gas is one of the leading suppliers of gas and electricity to homes throughout the UK. British Gas trade under a number of different names, Scottish Gas in Scotland,Nwy Prydain in Wales and house.co.uk when online. In terms of price, British Gas and each of its gas and electricity brands is at the upper end of the market. Being a customer of British Gas it would be almost impossible that one could not get a better deal by moving away from them. At first glance there is talk about savings of up to £91 by moving both supplies to them, but these are only savings against the already high British Gas prices. Currently British Gas has around 18.6 million customer accounts. Features of BRITISH GAS: ? Customer can fix their Dual Fuel, Gas or Electricity energy prices at the new rate until 31st January 2012.

? Cheapest available online tariff of any energy supplier ? The greenest energy supplier ? Home Care scheme - cover for all boiler breakdowns, repairs and inspections

Advantages:
? The offer to fix your energy prices for 3 years, is one of the longest in the

market, ? Energy prices are capped and guaranteed no more rises until 31st January 2012, ? Peace of mind in a volatile market - guarantee no energy price increases. These rates will be fixed until 31st January 2012. ? Switch to British Gas and save £200 on average. Customers have Option of Fixing energy prices for next 3 Years.

USA NATURAL GAS MARKET:
Liquefied natural gas (LNG) imports into the U.S. remain low as high-demand, premiumprice markets in Asia and Spain continue to draw the majority of LNG supply, leaving terminals in the U.S. and northern Europe underutilized. An unexpected rise in U.S. natural gas production also is filling domestic needs, keeping U.S. natural gas prices low relative to prices in other countries. Unexpected twist in the market Imports of LNG into the U.S. remain low as demand for natural gas in Asia-Pacific and European continues to attract cargoes with higher relative prices. On the supply side, repairs, maintenance and delays in new liquefaction projects have limited the availability of LNG so far this year. While a significant increase in global liquefaction capacity is projected in 2009, continuing natural gas demand growth and higher relative prices in parts of Europe and Asia are expected to attract much of the new supply. U.S. and global demand for natural gas and LNG has increased dramatically over the past 12 months. While demand for natural gas in the United States has grown significantly over this period as well, natural gas production in the U.S. has also seen an exceptionally large increase," the company stated. "In Texas alone, natural gas supplies grew by 15 percent between the first quarter of 2007 and the first quarter of 2008. Under current market conditions, U.S. production of natural gas is expected to continue to increase for the next few years. As rising U.S. demand has been met with rising domestic production, U.S. natural gas prices have remained well below those seen in international markets. This imbalance between U.S. and international prices has led to a dramatic reduction of LNG imports into the United State

In the U.S., the only terminals currently operating on a regular basis are at Elba Island off South Carolina and the Everett LNG terminal in Boston. The Cypress pipeline that links Elba Island to the Florida gas market has been a home run for BG, with pipeline capacity being utilized at more than 90 percent of capacity.

Natural gas represented 24 percent of the energy consumed and 27 percent of the energy produced in the United States .The industrial sector was the largest user of natural gas—for plant operations, cogeneration of electric power, and as an industrial feedstock. In addition, natural gas is the largest energy source consumed in the residential sector and the fastest growing energy source for electricity generation. In recent months, the high prices of natural gas used in the industrial, residential and commercial, and electricity generation sectors have caused exceptional public concern about the present and future operation of the natural gas industry and markets. The U.S. natural gas market is composed primarily of producers, pipeline companies, storage companies, LDCs, marketers (sometimes also referred to as ?aggregators?) and consumers. These are functional distinctions that are oversimplified in the current gas market, because some companies in the industry combine various segments, with ownership of production wells, pipelines, storage facilities, and even LDCs. However, in US Retail fuel prices are deregulated and price volatility is absorbed by Consumer. Motor fuels retail price directly correlated with world crude oil price (fiscal component lowest in developed world). Govt. watches fuel marketers closely to prevent price carters.

RESEARCH METHODOLOGY

Rationale for the study Retailing is defined as a business that sells products and/or services to consumers for their personal or family use. In the era of customer retention and customer delightment and the thin margin of profitability due to cut throat competition, every downstream company has to provide its best. The company which identifies its customers and its needs will emerge as the leader.

Descriptive Title of the study The descriptive title of the study was the emerging trends, options and challenges in gas retailing with the changing industry and political scenarios and ever increasing customer expectations.

Type of research: The study was descriptive and conclusive as it was being done with aim of reaching a definite conclusion.

Contribution from study: Gas retailing is the major revenue generator for the downstream companies. With so many private players coming into petro retail marketing, the company which provides better customer services and Quality and Quantity assurance will be the major gainer in terms of

both market share and revenue. A customer chooses a firm over others because it offers the greatest positive combination of end-result benefits and price (i.e. the greatest value) in the perception of that customer. This study showed what are the existing difficulties and shortcomings in this sector and what the companies should do about it from the point of view of the people who are in direct contact with the customers.

CONCLUSION Retailing is the most active and attractive sector of the last decade. While the retailing industry itself has been present through history in our country, it is only the recent past that has witnessed so much dynamism. It's the latest bandwagon that has witnessed hordes of players leaping onto it. While international retail store chains have caught the fancy of many travelers abroad, the action was missing from the Indian business scene, at least till recently. The emergence of retailing in India has more to do with the increasing purchasing power of buyers, specially post- liberalization, increase in product variety, and the increasing economies of scale, with the aid of modern supply and distribution management solutions. A definition of retailing is essential in order to be in a position to assess the impact of retailing and its future potential. The current retailing revolution has been provided an impetus from multiple sources. These `revolutionaries' include many conventional stores upgrading themselves to modern retailing, companies in competitive environments entering the market directly to ensure exclusive visibility for their products and professional chain stores coming up to meet the need of the manufacturers who do not fall into either of the above categories. Attractiveness, accessibility and affordability seem to be the key offerings of the retailing chain. Retailing is a technology-intensive industry. Successful retailers today work closely with their vendors to predict consumer demand, shorten lead times, reduce inventory holding and thereby, save cost. Wal-Mart pioneered the concept of building a competitive advantage through distribution and information systems in the retailing industry. They introduced two innovative logistics techniques - cross-docking and electronic data interchange. Today, online systems link point-of-sales terminals to the main office where detailed analyses on sales by item, classification, stores or vendor are carried out online.

Besides vendors, the focus of the retailing sector is to develop the link with the consumer. `Data Warehousing' is an established concept in the advanced nations. With the help of `database retailing', information on existing and potential customers is tracked. Besides knowing what was purchased and by whom, information on softer issues such as demographics and psychographics is captured. We are at a time when gaining a customers' trust is critical. It is a daily process, on purpose. It is a time to maximize potential, ethically and to deal with conflict and problems, with credibility. The petroleum retailers are also not left behind. Forecourt retailing is yet to emerge in a big way in India. But with renewed thrust from the oil companies, the concept is poised for the next stage of evolution. The concept of forecourt retailing at petrol stations is not new. It began in the 1980s when British Petroleum launched its first convenience store. In India, where consumer interface was recognised as a key factor, the concept was taken up in the late 1990s by Indian Oil Corporation, which started its multi-purpose distribution centres at petrol pumps in semi-urban and rural areas. The concept has been in vogue ever since. But recently it shot into limelight with oil companies trying to milk this revenue stream for more moolah. The oil marketing companies need to clearly identify customer needs and establish a strong corporate brand targeting select customer bases. The companies need to drive product and service offerings at retail outlets based on identified customer needs. They should develop cost-effective retail outlets, upgrade existing assets for better throughput and customer service. They should orient their distribution pattern and logistics in tune with demand in target markets and develop superior franchisee selection and training systems along with appropriate risk-reward mechanisms to drive performance.

In this respect, the oil companies have been coming up continuously with various initiatives to differentiate themselves from other competitors and attract customers. They have come up with various loyalty programs, cash card payment solutions, convenience stores, ancillary services, food outlets, various other value added service at the retail outlets to give the customers value for their money. Although the above matter to a large extent in bringing people to a retail outlet, the main drivers include convenient location, branded fuels and assurance of quality and quantity. Thus the companies should look for network expansion, supply chain optimization, steps towards anti adulteration measures and aggressive branding strategies,etc. to give the consumers the best they can. Oil companies have made sporadic attempts at exploring non fuel retail(NFR) opportunities in India – Car Wash, ATMs, Co Branded Credit Cards, Cyber Cafes, Convenience Stores, Food Outlets, etc. Though one-off success stories have been reported no cohesive strategy has emerged as yet on the NFR front. With the third largest distribution network (after post offices and FMCG outlets ) there is a lot of untapped potential left for exploring in this arena. The next few years should see all Oil Marketing Companies experimenting in this field. Moreover, Gas Retailers can take British Gas as an example of effective Gas retailing, the methods they have adopted, such as convenience to customer of paying bills online, the home care scheme; with one call customers can update each and every one of their British Gas accounts, from gas to burglar alarm support.

Ultimately, “It’s the customer who will emerge as the winner. The company who identifies its customers and his needs and provides satisfactory services will emerge as the leader”

REFERENCES

11.1) BOOKS & RESEARCH PAPERS

? Dr. Varshney, R.L. and Dr. Gupta, S.L. Marketing Management – An Indian Perspective, 18th ed, Sultan Chand & Sons, New Delhi,pp. 859-93. ? Kotler, Philip; Keller, Kevin Marketing Management , PEARSON Education,12th edition ? Strategic Shift in Indian Downstream Sector, by AT Kearney ? Issues in Deregulation of the oil & gas sector, By RK Narang, Ardhendu Sen, and Leena Srivastava (TERI, New Delhi). ? Petro Retailing‘, Study Material, University of Petroleum & Energy Studies.

INTERNET LINKS ? www.infraline.com ? www.energyinstt.org.uk ? www.imagesretail.com ? www.atkearney.com ? www.iocl.com ? www.bharatpetroleum.com ? www.ril.com ? www.hindustanpetroleum.com ? www.retail-leaders.org ? www.zeenews.com ? www.efkon.com ? www.retaildesigndiva.com ? www.findarticles.com ? www.petroleumbazaar.com ? www.ndtv.com ? www.forbes.com ? www.rediff.com ? www.google.com ? www.dogpile.com ? www.answers.com ? www.fuel4arts.com ? www.hpcl.com



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