A truck rolls into Reliance Industries' new gas station on India's national highway 4--a dry and dusty road in the south where workers are languidly setting tar to earth building a sliver of India's downsize version of the United States interstate system.
The trucker mumbles about the poor quality and quantity of diesel at higher prices from other, older pumps down the road run by state oil companies, as a uniformed attendant fills the tank from imported Italian dispensers.
The 10-acre site is a joint product of Flying J, a large diesel distributor in the US, and Minale Tattersfield, a UK design firm. A central server in Mumbai, India's commercial capital, keeps tabs on pumps at 200 (of a proposed 5,000) Reliance service stations.
Such is the change coming to Indian petrol marketing, a first step to broader retail liberalisation. 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.
Farther down NH4 lies Bangalore, India's Silicon Valley, where Royal Dutch/Shell is busy scouting for a site. Vikram Singh Mehta, chairman of Shell India, is finalizing plans to situate the first few of Shell's proposed 2,000 stations.
Shell and Reliance combined are to invest more than $2 billion nationwide in the next five years. 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 now wants to take back its share of India's $30 billion petroleum products market.
It, Reliance and another private domestic concern, Essar Oil, are concentrating on highways where 330,000 truckers guzzle $10 billion worth of diesel every year.
"The new entrants have no options. State oil companies crowd the cities," says Devinder Chawla, executive director, PricewaterhouseCoopers, Mumbai. The new entrants are offering choices to Indian motorists. Most pumps have been isolated entities, selling a cocktail of kerosene, a highly subsidised 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And urban Indians, who until recently drove outdated cars and relied on word of mouth to find a clean pump, now drive large Fords and Hondas and demand better fuel and service.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.
"Adulteration is widespread. But we are changing," says N.G. Kannan, director of marketing at $28 billion (revenues) Indian Oil, which has a 55% market share, making it the biggest state-owned player. Kannan is going one up on competition by housing ambulances, hospitals and AIDS awareness centers--working with the Bill and Melinda Gates Foundation--at 113 highway outlets.
Also, India's biggest oil company is spending up to $250 million to refurbish 2,800 of its busiest outlets. The newcomers are bringing more than service stations.
"We are investing well over $650 million in a gas import terminal in Hazira, our first such investment in the world. We have faith in the market," says Shell's Mehta.
The highway-building program should induce big increases in Indian oil consumption, currently only a tenth that of the US Only 7 in every 1,000 Indians owns 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.
Still, Shell rivals ExxonMobil, BP and ChevronTexaco are not exactly rushing in, fearing regulatory potholes. 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.
"The government controls pricing through state players," says a senior official of Indian Oil, which itself lost $210 million in April to September 2004 because of price curbs on diesel and gasoline. Shell will source gasoline and diesel from a rival.
Unlike Reliance, it does not own a refinery in India. "It is uncomfortable to depend on your competition for supplies. But we are in for the long haul. If you want your money in three years, [this market] is a no," says Mehta.
The industry is banking on ultimately getting out of the squeeze between controlled prices and rising crude costs by relief on both ends. 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 pre cent 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.
China had to give retail access commitments in order to enter the World Trade Organization, whereas India, a longer-standing WTO member, did not. Nonetheless, a report being prepared for the new Congress Party government--so far sympathetic to economic liberalization--has optimists expecting major steps within five years, maybe much sooner if the West horse-trades.
Hong Kong's Dairy Farm International is currently the only foreign entity with a big stake in retail through a 49% ownership in India's Foodworld, which was acquired during a two-year liberalization window that ended in 1997.
At $75 million in revenues Foodworld--which is teaming with Indian Oil to offer pumps at supermarkets in the Chennai (Madras) metropolitan area--the traditional role of grocery buying by women is giving way to men pushing shopping carts down air-conditioned aisles. Ved Prakash Arya, chief operating officer at Pantaloon, a $140 million retailer whose stores are modeled on Western hypermarkets, recalls seeing 'a man wearing a single cloth and no footwear' enter its new Big Bazaar hypermarket in Bhubaneswar, a small city in eastern India.
The convenience store is even further behind the supermarket in coming to India, thanks to the loyalty shown to traditional small merchants, but Bharat Petroleum has opened 235 In & Out stores.
Still, overall non-fuel revenues in India are close to 1 per cent of pump revenues compared with the US, where the figure could be as high as 35 per cent.
The barriers to full-scale multinational retailing in India go beyond the country's first-order protectionism: Huge chains like Gap, Wal-Mart and Carrefour would need to build domestic sourcing (which they are busy doing for export) as well as systems as a prelude to rolling out storefronts. Even laws dictating the working hours of women are a factor.
But now that Indians are getting a taste of competition and convenience at the roadside pump, the momentum for shopper sovereignty is only likely to increase.
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