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INSTITUTE OF PROFESSIONAL EDUCATION AND

RESEARCH, BHOPAL

MANAGERIAL ECONOMICS

Report on

“STRATEGIES USED TO GENERATE EXTRA
REVENUES”
PETROLEUM SECTOR

Submitted to: Submitted
by:
Prof.Resham Chopra Ankita Taur
Nipun Guru
Poonam Khichi
Prerna Kaithwas
Pragya Tiwari
Namrata

PETROLEUM SECTOR

The petroleum industry includes the global processes of exploration,
extraction, refining, transporting (often by oil tankers and pipelines), and
marketing petroleum products. The largest volume products of the industry
are fuel oil and gasoline (petrol). Petroleum is also the raw material for
many chemical products, including pharmaceuticals, solvents, fertilizers,
pesticides, and plastics.

The production, distribution, refining, and retailing of petroleum taken as a whole
represents the world's largest industry in terms of dollar value.

Major petroleum firms in India:
Indian Oil Corporation (IOC)
Hindustan Petroleum Corporation Ltd. (HPCL)
Bharat Petroleum Corporation India (BPCL)
Oil India Ltd. (OIL)
Essar Oil Ltd.
ONGC India
Assam Oil Company Ltd (ACL)
Petronet LNG Ltd
Gujarat State Petroleum Corporation Group (GSPC)
Indian Oil Corporation (IOC)

Introduction
Indian Oil Corporation, or Indian Oil, is an Indian public-
sector petroleum company. It is India’s largest commercial enterprise, ranking
105th on the Fortune Global 500 list in 2009. Indian Oil and its subsidiaries
account for a 47% share in the petroleum products market, 40% share in refining
capacity and 67% downstream sector pipelines capacity in India. The Indian Oil
Group of Companies owns and operates 10 of India's 19 refineries with a
combined refining capacity of 60.2 million metric tons per year.

State-owned oil company that owns 10 of India's 18 refineries and owns &
operates the country's largest network of crude & product pipelines; corporate
office is in New Delhi; Indian Oil is India's largest company by sales.
PRODUCTS:

AutoGas
Indian Oil Aviation Service
Bitumen
High Speed Diesel
Bulk/Industrial Fuels: Furnace Oil, Light Diesel Oil, LSHS.
Indane Gas
SERVO lubricants & greases : Agricultural Spray Oils, Automotive Greases,
Automotive Lubricating Oils, Automotive Speciality Oils, Industrial Greases,
Industrial Lubricating Oils, Industrial Speciality Oils, Metal Working Oils, Railroad
Greases.
Marine Fuels & Lubricants
MS/Gasoline
Petrochemicals: LAB – HMW, LAB – LMW, PTA, Polymers.
Special Products: Benzene, CBFS, Food Grade Hexane, Jute Batching Oil, Micro
Crystalline Wax.
Superior Kerosene Oil
Oil Crude

Organisation: Pragati Petrol Pump

Location: Zone 2, M P Nagar, Bhopal - 462011
Phone : (0755) 2572544

Now to analyze IOC revenue generating strategies we prepared
a questionnaire which was answered by Mr. Dinesh Jain who is
the owner of petrol pump and the questions are:

Q 1. When the organisation was established?
Ans: In 1986.
Q 2. What are the main products the organisation is dealing with?
Ans: xtra premium petrol, Motor speed petrol, High speed diesel, 20W40(Servo
multigrade petrol), 2T oil, 4T oil.
Q 3. Who are the major competitors?
Ans: HPCL, BPCL & OIL.
Q 4. What are the direct sources of revenue generation?
Ans: By selling petrol and diesel.
Q 5. What are the indirect sources of revenue generation?
Ans: By selling lubricants, distill water, acid, yellow cloth, supermarket lease etc.
Q 6. What is the percentage share of IOC in Indian market?
Ans: Indian Oil and its subsidiaries account for approximately 48% petroleum
products market share, 34% national refining capacity and 71% downstream
sector pipelines capacity in India.
Q 7. What strategies IOC is adopting to generate extra revenue?
Ans:

• Exclusive XTRACARE petrol & diesel stations
• Indian Oil has been providing technical and manpower consultancy
services to overseas companies
• In order to widen its horizon, IOC has done vertical integration— upstream
into oil exploration & production (E&P) and downstream into
petrochemicals and diversification into natural gas marketing, bio fuels,
wind power projects, besides globalisation of its downstream operations.
• Entered into bio fuel sector by forming a joint venture with the
Chhattisgarh Renewable Development Authority (CREDA).

Q8. How do you retain your customers?

Ans: Satisfactory services are very important to retain customers and we retain
our customers by providing satisfactory services. We try to be Transparent in our
dealing with our customers. We provide better services like water, air pressure,
acid etc.

Hindustan Petroleum Corporation Ltd.

Introduction

HPCL (Hindustan Petroleum Corporation Limited), a Navratna PSU of the
Government of India, is a Fortune 500 company of India listed at number 311 in
the global 500 rankings, with an annual turnover of over Rs. 1,16,428 Crores and
sales/income from operations of Rs 1,31,802 Crores (US$ 25,618 Millions)
during financial year 2008-09, about 20% Marketing share in India and a strong
market infrastructure. Corresponding figures for financial year 2007-08 are:
Turnover- Rs 1,03,837 crores, and sales/income from Operations- Rs. 1,12,098
Crores (US$ 25,142 Million).

HPCL operates 2 major refineries producing a wide variety of petroleum fuels &
specialties, one in Mumbai (West Coast) of 5.5 Million Metric Tonnes Per Annum
(MMTPA) capacity and the other in Vishakapatnam, (East Coast) with a capacity
of 7.5 MMTPA. HPCL holds an equity stake of 16.95% in Mangalore Refinery &
Petrochemicals Limited (MRPL), a state-of-the-art refinery at Mangalore with a
capacity of 9 MMTPA. Another Refinery of 9 MMTPA is under construction in
Bathinda, Punjab by HMEL, a Joint Venture with Mittal Energy Investments
Pte.Ltd.

HPCL also owns and operates the largest Lube Refinery in India producing Lube
Base Oils of international standards. With a capacity of 335 TMT. This Lube
Refinery accounts for over 40% of the India's total Lube Base Oil production.
Presently HPCL produces over 300+ grades of Lubes, Specialties and Greases.

The marketing network of HPCL consists of 13 Zonal offices in major cities and
90 Regional offices facilitated by a Supply & Distribution infrastructure comprising
Terminals, Aviation Service Facilities, LPG Bottling Plants, Lube filling plants,
Inland Relay Depots, Retail Outlets (Petrol Pumps) and LPG & Lube
Distributorships.

STRATAGY FOR EXTRA REVENUE GENERATION.

Crude Refining and Marketing of finished Petroleum products is the core area of
the Corporation. Opportunities are also being explored to access new revenue
streams, and augment downstream businesses. Accordingly, HPCL has ventured
in Upstream activities (Exploration and Production) and piped gas distribution in
major cities

JOINT VENTURES:

• HPCL-Mittal Energy Ltd.(HMEL)

• Hindustan Colas (HINCOL)

• Prize Petroleum Company Limited

• South Asia LPG Co Pvt. Ltd. ( SALPG)

• Bhagyanagar Gas Limited (BGL)

• Aavantika Gas Limited

• Petronet India Limited (PIL)

• Petronet MHB Limited (PMHBL)

• CREDA-HPCL Biofuel Limited (CHBL)

• Sushrut Hospital and Research Centre

SOURCES OF EXTRA REVENUE GENERATION :
Established network - Source of marketing strength in oligopolistic
industry: The key competitive strength is HPCL’s vast marketing and distribution
network, which encompasses over 4,700 retail outlets, 90 depots, 35 installations
and an LPG customer base of over 16 million. Moreover, in the retail segment,
which accounts for substantial sales, HPCL directly controls more than 67 per
cent of its outlets, a large proportion of which are in the high-value urban and
metro centres. HPCL’s marketing strength is evident from its consistent 20 per
cent share of the domestic petroleum market, which is dominated by four large
players. The existing arrangements between PSOCs in terms of access to
products and hospitality will continue till November 2003. This assures HPCL of
product access and security in the near future. Given the PSOCs’ established
marketing strengths, Crisil believes that the industry will maintain its oligopolistic
structure in the medium term.

Retail Plans - Branding Prerequisite for Future Growth: Given the commodity
nature of petroleum products and their limited demand growth, players are
increasingly focusing on establishing a brand identity so as to capture the market
share. Consequently, they are consciously investing in refurbishing and
upgrading their retail networks besides offering a higher value-added service mix
by setting up automated teller machines (ATM) and convenience stores at petrol
pumps. Their marketing strategies are thus aimed at differentiating service,
improving visibility and enhancing customer satisfaction. HPCL too has launched
a series of initiatives to enhance customer service standards. It has branded its
outlets as "Club HP," thereby assuring customers of quality standards in terms of
product quality and additional services.

Controlled Marketing Margins - GoI as Regulator: In the absence of an
independent regulator, the GoI continues to act as one and plays a role in pricing
petroleum products in the domestic market. It has not yet decontrolled SKO and
LPG and despite the recent 16-26 per cent spurt in international prices (which is
the benchmark for domestic prices), it has directed the PSOCs to hold SKO and
LPG prices at their March 2002 levels. Since the GoI subsidy for LPG and SKO
is not commensurate with international prices today, the full impact of decontrol is
not reflected in HPCL’s financial profile. There are a host of other unresolved
issues as well like the mode of subsidy payments to PSOCs for providing LPG
and SKO at lower than international prices.

Protection to Indian Refineries - Significant Source of Comfort: As with most
Indian refineries, HPCL’s refineries too have a low degree of Nelson’s
complexity, which increases the company’s dependence on expensive crudes
(lighter and low-sulphur crude oils). As a result, the company has a lower value-
added product basket, which is skewed in favour of medium and heavy distillates
like fuel oil and bitumen. In contrast, newer refineries tend to have a higher
degree of Nelson’s complexity of around 9.5-9.9 and consequently, a lower
dependence on expensive crudes. Thus, their product mix chiefly comprises
higher value-added lighter distillates.
Indian refineries, however, enjoy the benefits of a favourable tariff protection
policy. The imposition of a 20 per cent customs duty on imported products
protects Indian refiners from dumping. Hence, the continuation of this policy is a
significant source of comfort.

Kelkar Committee’s Recomm-endations - Threat to Protection Levels But
Implementation Unlikely:The petroleum industry currently enjoys protection
levels of 10 per cent, which is the differential between the customs duty on
finished products and crude oil. The Kelkar committee has recommended in
November 2002 that these protection levels should be brought down to 5 per
cent over a two-year timeframe. If approved by the GoI, the implementation of
these norms would expose Indian refiners to an import threat, which could be
offset by the new entrants’ lack of marketing infrastructure. But the larger threat
would come from lower realisations for refiners, which would negatively impact
the PSOCs’ financial profile. The Kelkar committee’s norms are currently under
discussion but given the revenue implications, they are unlikely to be
implemented in their current form.

Stable Financial Profile: As in the past, HPCL’s financial profile continues to be
favourable, characterised as it is by robust cash generation from operations, low
gearing, high cash coverage ratios and a high networth. Going forward, higher
marketing margins and the concomitant increase in cash accruals from
operations should further bolster HPCL’s financial profile. The company’s low
gearing and steady cash generation should also provide it with adequate
financial flexibility to support its capital expenditure plans and investments in
joint-venture companies.

Dividend Policy - Key Determinant of Future Financial Profile: The GoI has
been tapping public sector undertakings for higher dividends. In some
disinvestment cases like Videsh Sanchar Nigam Limited, it has also dictated
special dividends prior to reducing its stake in the company. Indian Oil
Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL), HPCL and Oil
India Limited (OIL) have paid dividends of Rs 15.26 billion in 2002-2003. Any
significantly higher outflows could adversely impact their cash flows and
consequently, their future capital expenditure funding requirements.

Implementation of GGSRL Project - Linked to Divestment of GoI
stake: HPCL had conceptualised a Rs 120 billion project entailing a nine mtpa
refinery at Bhatinda (Punjab) and a crude pipeline from Kandla to Bhatinda. The
project was floated under a separate company, GGSRL. The scope of the project
is now being reviewed and is closely linked to the GoI’s divestment of
management control and part of its stake in favour of a strategic partner.