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IOC set to flood Sri Lankan petrol market

Shweta Rajpal Kohli in New Delhi

The Indian flag is finally going to fly in an overseas market. State-run Indian Oil Corporation is set to corner a quarter of the retail market for petrol in Sri Lanka within the next two years.

IOC is planning to set up 150 franchisee retail outlets in Sri Lanka, in addition to the 100 petrol stations that the oil major intends to take over from Ceylon Petroleum Corporation.

This will take the number of IOC retail outlets in Sri Lanka to around 250, almost one-fourth of the number of petrol stations there.

More important, the petrol stations will be run under IOC's Indian Oil brand.

"Our retail foray into Sri Lanka is turning out to be much bigger than anticipated. We are progressing very fast and have identified the initial 100 outlets," a highly placed IOC official said.

The oil major recently launched a wholly owned subsidiary in Sri Lanka, Lanka IOC. A joint venture has also been floated in partnership with Ceylon Petroleum Corporation, called Sri Lanka-IOC Ltd.

While the wholly owned subsidiary, Lanka IOC, will undertake retail marketing of petroleum products, the joint venture company with Ceylon Petroleum Corporation will concentrate on the creation of distribution infrastructure like depots and terminals.

The oil major has formed a 10-member team in Colombo to start work on the projects. The team includes a regional manager and marketing and engineering personnel.

"We hope to be on ground within the next three months," said the IOC official.

"We have been doing many roadshows in Sri Lanka and the response has been excellent. Many of the local dealers have expressed a desire to cancel their existing franchisee arrangements and have agreements with IOC," the official said.

IOC has appointed leading management consultant KPMG to assist the oil major. It has signed a memorandum of understanding with Ceylon Petroleum Corporation whereby the latter will divest 100 retail outlets in favour of IOC and will assist the oil major to re-assign the franchise outlets.

It has recently received clearance from the Sri Lankan government for setting up a terminal for petroleum and petroleum products as well as a retailing infrastructure in Sri Lanka.

The initial investment in Sri Lanka is around $50 million, which is likely to be stepped up later depending upon the business prospects.

IOC has also signed a one-year export agreement with Sri Lanka in July this year for supplying 480,000 tonnes of kerosene and diesel to Sri Lanka.

"The $130-million contract is the biggest export order contract that the company has undertaken," the official said.

The first consignment of aviation turbine fuel and high-speed diesel has been despatched last month from Chennai for delivery to Ceylon Petroleum Corporation at Colombo.

Sri Lanka has a capacity of 3.2 million tonnes. With a refining capacity of 2.2 million tonnes, there is a deficit of around 1 million tonnes.

"The retail market in Sri Lanka is in a primitive stage now," the official informed.

"We intend to refurbish the retail outlets. Besides changing their appearance, we will also provide the latest facilities and services," he said.

Both IOC and Ceylon Petroleum Corporation have agreed to operate and use the existing and future downstream infrastructure on a common-user principle basis for better development and a better operating efficiency of petroleum terminals, storage depots, including aviation fuelling facilities and other infrastructure in Sri Lanka.

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