The Foreign Investment Promotion Board has decided not to allow the Royal Dutch/Shell group to set up a wholly owned subsidiary Shell India Marketing Pvt Ltd for marketing transportation fuels unless the company furnishes a bank guarantee of Rs 500 crore (Rs 5 billion) or meets the criterion of a minimum Rs 2,000 crore (Rs 20 billion) worth of investments in India.
The decision was taken on Friday as the petroleum and natural gas ministry objected to Shell's application on the ground that the company had not yet been granted an unconditional authorisation to market petroleum products through retail outlets since it was yet to fulfil the conditions laid down in the licence policy, government sources said.
As Shell has been insisting that it will furnish the bank guarantee only prior to the commercial rollout of its first retail outlet, the FIPB has now directed it to come up with a fresh application as and when all the conditions for a valid licence have been fulfilled.
Shell was floating the company with the aim of starting the groundwork for its proposed petroleum product retail project involving 2,000 retail outlets.
It was granted a conditional authorisation in May this year for setting up around 2,000 retail outlets in the country.
The company was asked to furnish a Rs 500 crore bank guarantee provided it could not complete investments of Rs 2,000 crore and furnish details of its retail plans for remote, low-service areas.
"I am not aware of the government's decision on our application. What we have said earlier is that we will comply with all regulations as laid down by the government. As per the licence granted to us in May, we are to provide the Rs 500 crore bank guarantee only prior to the commercialisation of our first retail outlet. Our first outlet will be ready sometime in the first half of next year," Vikram S Mehta, head of the Shell Group in India, said.
Mehta said he was confident that the company's total investment in the country would cross the Rs 2,000 crore limit this calendar year. In such a scenario, the company may not be required to furnish the bank guarantee.
He said the plan was that the proposed wholly owned subsidiary would start the groundwork for the retail business like zeroing in on locations, procuring regulatory approvals and rights, and carrying out branding drills.
Shell has proposed to invest Rs 460 crore (Rs 4.60 billion) in Shell India Marketing through Shell Gas BV and Petroleum Assurantie Maatschappij BV, both wholly owned firms of the Royal Dutch/Shell group of companies.
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