The Indian Petroleum Industry:

Towards Branded Fuels

"As the market becomes competitive, brand management will require careful thought.
Though differentiation remains the key to competitive advantage, it may no longer
serve the purpose. "
- Madan B LaI, Chairman and Managing Director, Hindustan Petroleum
Corporation Limited.
"All players will have to focus largely on brand building and marketing to grow in the
market place. "
- Madhu Nainan, Editor,Petrowatch-India, commenting on the future of Indian
Petroleum Industry.

THE LAUNCH OF BRANDED FUELS

In July 2002, Bharat Petroleum Corporation] (BPCL), one of the leading players in the
Indian petroleum industry, launched premium grade petrol under the brand name,
'Speed'. This was the first instance of an oil company launching branded fuel in the
market. Soon, the two other leading oil companies, Indian Oil Corporation" (lOC) and
Hindustan Petroleum Corporation Ltd.3 (HPCL) also launched their own 'new
generation' fuels.
While IOC's branded petrol was called 'Premium,' HPCL called it 'Power.' IOC and
HPCL also launched branded diesel called 'Diesel Super' and 'Turbo Jet'
respectively. In December 2002, another company, IBP,4 launched a new brand of
premium grade petrol 'Josh; and a premium grade high speed diesel, 'Shakti.' Within
a short span of time, the country had seen the emergence of an entirely new market
category.

] BPCL was formed in the 1970s by the Indian government as a part of its nationalization drive
for oil companies. Over a period of time, the government stake in the company was diluted
from 100% to 66%. BPCL had an overall market share of20% in 2002. The company had an
extensive marketing infrastructure and a vast network of retail outlets (under the 'In & Out'
and 'Pure for Sure' initiatives) across the country.
2 Indian Refineries and the Indian Oil Company were set up in 1958 and 1959 respectively
with the objective of acquiring competence in oil refining and marketing. ill 1964, these two
companies merged to form lOCL. ill 2003, it was the largest player in the downstream
petroleum sector. lOCL is also the largest commercial undertaking in the country and is the
only Indian company with a Fortune Global 500ranking among the world's largest industrial
and service companies (rank 226)..
3 HPCL was first incorporated as Standard Vacuum Refining Company of India in 1952 and
later named ESSO India. The company was renamed as HPCL in 1974. India's second
largest integrated oil refming and marketing company, HPCL has an extensive infrastructure
of refmeries, cross-country pipelines, LPG bottlirig plants, and aviation service facilities. It
owns a vast network of retail outlets and regional offices. The Indian government is the
major shareholder with a 51% stake in the company.
4 IBP was first incorporated as Indo-Burmah Petroleum in the Burma (now Myanmar) in 1909.
The company became a subsidiary ofIOC in 1970. The government acquired laC's stake in
1972 and IBP was established as a separate public sector enterprise. It was classified as an
independent oil marketing company in 1989. In 2002, laC acquired a 33.58% stake in IBP.
The principal business of IBP is the storage, marketing and distribution of petroleum
products.
 Industrial Marketing

According to industry observers, this trend was in line with the global trends wherein
petroleum companies tried to build a loyal customer base by branding petroleum
products. As petrol and diesel had traditionally not been seen as categories with much
scope for product differentiation, branding of these products came as a welcome
change. It was a conscious and proactive effort of the companies towards brand
building, in the wake of the radical changes taking place in the industry since the
beginning of the country's economic liberalization in the early 1990s.
As the industry became more competitive and customer-driven, companies needed to
focus like never before on marketing strategies. The first significant development in
this direction was the 'conversion' of petrol pumps (gas stations) into retailing outlets.
The launch of branded fuel seemed to be the next logical step for the companies.
The new brands were being extensively promoted through the print, electronic and
outdoor media. Since these new fuels were priced higher than the conventionally sold
petrol/diesel, BPCL, laC, HPCL and IBP were working hard to communicate the
benefits of using their products and justify the higher prices. However, analysts
expressed their reservations as to whether the extremely price-conscious Indian
customer would be willing to pay more even though these brands were supposed to be
technically superior.

BACKGROUND NOTE: THE INDIAN PETROLEUM INDUSTRY

The origin of the petroleum industry in India can be traced back to the end of the 19th
century, when petroleum was discovered in Digboi, Assam (north-east India). The
industry was initially open for international players and global oil majors such as
Caltex, Esso and Burmah Shell were operating in the country. However, after the oil
crisis of the 1970s, the government nationalized the Indian divisions of the
international oil companies and the industry became one of the most strictly regulated
industries in the country. The government nationalized the refining and marketing
sectors and subsequently, introduced regulatory controls on the production, import,
distribution and pricing of crude oil and petroleum products by establishing the Oil
Coordination Committee (OCC).
Through the OCC, the government administered the prices of petroleum products after
establishing a complex oil pool account system. Producers, refiners and marketers
were compensated for operating costs and were also assured of a fair return on their
assets through the administered price mechanism (APM, refer Exhibit I). Prices of
petroleum products at all refineries and locations were equalized. During this period,
government controlled entities accounted for 90% of the market share.
Major players like laC, BPCL and HPCL 'dominated the market in the downstream
sector, while the upstream sector was dominated by the Oil and Natural Gas
Corporation and Oil India claiming approximately 84% of the share of the total
marker' (Refer Table I). After the liberalization of the Indian economy in the 1990s,
the industry witnessed some fundamental changes. The policy makers realized that
APM would no longer work as successfully as it had in the past and that the sector
would have to be opened completely. Thus, the government initiated the deregulation
process in 1995, wherein the APM was replaced with a market determined pricing
mechanism (MDpM).6

5 The downstream sector constitutes the refiners and marketers of petroleum products, while
the upstream sector constitutes the producers of crude oil.
6 In April 2002, APM was completely dismantled and the oil industry was fully decontrolled.

78
 The Indian Petroleum Industry: Towards Branded Fuels

Table I: Key Players in the Downstream Sector

r:
Company Ownership Refining capacity Market share
(2002)
JOC 84% state- 620,000 bpd# 55%
owned
BPCL 66% state- 180,000bpd 20%
owned* w \

HPCL 51% state- 295,000 bpd 20%

owned*
-
,mp 33% held by - 5%
IOC
RELIANCE Privately owned 540,000bpd $
IND.
ESSAROIL Privately owned 2l~,000 bpd@ $
*. Controlling 26% stakes due to be sold off; # Barrels per day; @ Due to be
commissioned in 2004;
$ Private players were not allowed to market directly to the consumers .
. Source: www.worldmarketsanalysis.com
With the introduction of the MDPM and deregulation of the marketing and refining
sectors, the industry was opened completely to private and foreign participation. The
government allowed four companies, Reliance Petroleum, ONGC, Essar and
.Numaligarh Refineries to market petroleum products through their retail outlets. With
the entry of these new players, competition intensified and posed a serious threat for
the existing players.
Though the demand for petroleum products had been witnessing a downturn for some
time, future projections indicated a strong growth potential. Private sector players like
Reliance Petroleum and international players like Shell were expected to become
major forces in future. Madan B. Lal (Lal), Chairman and Managing Director, HPCL,
said, "In a deregulated scenario, the industry is going to be more competitive, more
responsive and consequently, more efficient."
By 2002, India had become the fourth largest oil consumer in the Asia-Pacific region
after Japan, China and South Korea. Estimated to increase at the rate of 7% a year, the
demand for petroleum products was expected to more than double from 96 million
tonnes to 195 million tonnes per annum by 2011-12. Commenting on the post-APM
scenario, Lal said, "What is sure is that the number of players will change as private
sector players enter the market and companies take up the route of mergers and
alliances. "
With the deregulation of the sector, companies were allowed to set their own domestic
petroleum product prices. However, the government still controlled most of the prices
and the oil companies were forced to explore other segments of the market where they
could increase prices without waiting for the government's approval. Hence, the
decision to introduce branded fuels.
During the APM regime, public sector companies 'owned' the market and hence they
never felt the need to pay attention towards brand building and customer loyalty
(branding initiatives having been limited only to the lubricants market). However,
analysts said that a strong, widespread, integrated marketing network, pricing
strategies and brand building efforts would playa key role in determining the success
of the players in future. Thus companies realized the importance of becoming
customer.;aifd market oriented.

79
 Industrial Marketing

THE NEED FOR BRANDING PETROLEUM PRODUCTS

BPCL pioneered the petrol pump retailing revolution in the country and was the first
company to establish retail outlets in a major way. HPCL and 10C also opened stores
within their outlets and positioned them as a 'one-stop retail shop'. While BPCL used
the brands 'In & Out' and 'Pure For Sure', HPCL and 10C named their outlets, 'Club
HP' and 'Convenio' respectively.
BPCL launched the 'Pure for Sure' program in August 2001 to ensure that petroleum
products were delivered properly both in terms of quantity as well as quality. The
campaign' was aimed at stringent certification of quality and quantity, ensuring
courteous, personalized services and efficient fuelling. Around 1500 retail outlets (of
the company's 4,582 outlets) were covered under the 'Pure for Sure' campaign.
Similar measures were. undertaken by 10Cand HPCL. Both the companies expanded
their retail initiatives rapidly. The companies promoted the retail outlets aggressively
and their media campaigns mainly focused on providing convenience, modem
facilities, cleanliness and pure (unadulterated) fuel.
By 2003, HPCL had emerged as the most visible brand because of its high decibel
media campaign for Club HP. However, BPCL's outlets had the highest brand recall.
This was largely due to the company's focused marketing efforts over the years. IBP's
marketing initiatives had been comparatively low-key; its 'Q&Q Assurance Program'
started in 1997 was relaunched as the 'Pure Bhi Poora Bhi' (pure as well as complete)
program in 2003. But it was yet to
reach the decibel level of the marketing initiatives
of other companies. The company was reportedly planning to focus strongly on the
retailing and marketing initiatives in future.
Industry observers commented that with all companies adopting almost similar
strategies for their retail efforts, there was little differentiation. In December 2002, Joy,
Bannerjee, Director & Executive Vice President of 10C's advertising agency, RK
SwamylBBDO said, "So far, the need for advertising was not felt because the
environment was not competitive. But with other players in the market, there is a need
for brand building." However, even the new players would in all probability not offer
anything radically different from the existing products. Thus, though the companies
involved considered the retail initiatives as a tool for deriving competitive advantage,
analysts remarked that this would hold true only in the short -run.
As competition was bound to intensify in the future and the industry was moving
towards deregulation being completely implemented, it was expected that companies
could even undercut their prices. Moreover, given the similarity of refining facilities
and raw material and distribution costs, production costs of the companies would be
more or less similar. As a result, the retail prices of different companies were also
expected to be almost similar, varying at the most by 1-2%. The need for greater
product/price differentiation was expected to become stronger.
The brand building initiatives undertaken by Indian oil companies were also
influenced by the global trend of petroleum companies. Companies such as Shell, BP,
Exxon Mobil and ChevronTexaco had for long been offering value-added fuels that
claimed to lower exhaust emissions. The fuels they offered were environment-friendly
and helped vehicles comply with the emission norms (regarding pollution control)
prescribed by the concerned authorities (Refer Table II for a note on modified fuels).
Some companies even went beyond these requirements. BP, for instance, introduced a
new premium blend, which lowered sulfur emissions to levels that would become
applicable only after 2008. The modified fuel was also supposed to improve the
performance of automobiles. Shell also launched a new additive that reportedly
protected the engines of cars.

7 This campaign was launched on the basis of a market research study, which revealed that
adheren~e;te; quality, quantity; quick refueling and courteous service were the most important
factors that influenced a consumer's fuel buying decision.

80
 The Indian Petroleum Industry: Towards Branded Fuels

Table II: What Do Modified Fuels Do?

The term, 'branded fuel' essentially refers to fuel that has been modified by adding
certain multi-functional performance additives. The additives jn .these branded
fuels play the role0f·a detergent for rhe fuel-feed system of a vehicle,
In a new vehicle, the carburetor, fuel injectors, fuel intake valves and ports, and the
combustion chamber are free from deposits. However, over time, carbon deposits
tend to accumulate on these parts, impeding the vehicle' s performance. Moreover,
as fillnewJ~e~e~~on car~lare fitted witI!.Mul~;;Port Fuel Inje<;tors~FI)8 ~to
accurately deliver petrol m the form of fine droplets for clean burning), MPFI
deposits are formed when the engine is turned off. This is because the trapped fuel
in the injector is exposed to higher temperature for a longer time than the flowing
fuel. Because of the narrow fuel passages, injectors become highly sensitive to the
s~;!est a~ount of deposit.~in th~ Witic~region~~ 'Yher~)~e fu~,Iis metered. ~~at
de.gtaaes me fuel and initiates a:eposit,formation. IntaKe valves and ports 'are
subject to more deposits than fuel injectors as they operate at higher temperatures.
These deposits can alter the spray pattern and reduce the fuel flow, reducing
drivability, -decreasingpower and fuel economy, and increasing emission levels.
The'[tadditi\I~s in~randed;.fuels ¥Afecti'\i~y remove h~ Y·~~positslifr~
components' They clean up fuel injectors, valves.and combustion chambers
with the fuel tank and fuel lines. The additives also constantly'clean deposits and '
prevent gum formation in the engine. Branded fuels, thus, help festore the original
engine performance, ensure easy start-ups and increase fuel efficiency, leading to'
lo."\~:r emissions. 'LraditioQiilly,t4~se'additives ~~re ad<ledsep,-atelY~~.jthe
Br~ded fuels eliminate the need'for purchaSnlg additives at the tim~=of
filling. .

Source: www.bharatpetroleum.com
Considering the increasing awareness for environment-friendly products among
Indian consumers, the introduction of branded fuels seemed to be a timely move.
Moreover, since the emission norms regarding automobile pollution were being
tightened in the country, environment-friendly fuels were expected to generate
sufficient interest in the market.

BUILDING THE NEW FUEL BRANDS

Having realized the need for brand-building, oil companies invested heavily in
product development and R&D to come out with fuels that would suit the
requirements of Indian roads as well as comply with the emission norms. BPCL's
Speed was blended with multi-functional additives sourced from Chevron Oronite
Company LLC, a ChevronTexaco company. Commenting on this, S Rarnesh
(Ramesh), General Manager (Brand Management), BPCL, said, "With more cars
running on the MPFI technology, the new variant will help remove carbon deposits
from the fuel tank and cleanse the engine, thereby giving the consumers better
mileage and protection to cars."

8 Also known as port, multi-point or sequential fuel injection. In this system, each cylinder in
the vehicle's engine has a number of injectors supplying/spraying fuel in the cylinders as
against the single, centrally located injector in case of a single point injection system. MPFI
aids in a more uniform air/fuel mixture being supplied to each cylinder, leading to lesser
- vibrations; higher engine component life, better overall driving experience and mileage, and
low emissions.

81
 Industrial Marketing

HPCL's Power was also blended with a specially imported multi-functional additives
package that was formulated to remove deposits from the engine, thereby, ensuring
optimum burning of petrol. While Power benefited the new generation MPFI engines,
it also helped in getting optimum performance in traditional carbureted engines as
well as two wheelers. An internationally accredited fuel testing laboratory in Germany
ranked Power amongst the world's top petrol brands. 'Turbojet,' the new diesel brand
also had imported additives.
IOC's Premium was reportedly India's first and only high-octane petrol that was
reinforced with world-class anti-knocking additives." Its engine cleansing qualities
reportedly improved mileage and lowered emissions. According to company sources,
adding an extra dosage of this additive over and above the normal dosage helped
remove gummy deposits already formed inthe system. By keeping the intake system
and injectors in MPFI engines clean, Premium ensured a proper air-fuel mixture and
therefore, better combustion and reduced emission levels: IBP's Josh also claimed to
have special additives thatimproved fuel efficiency.
Speed was initially made available exclusively through 16 'Pure for Sure' retail
outlets located in different parts of Delhi (Refer Figure I for a Speed vending unit).
Figure I: A Speed Vending Unit

Source: www.bharatpetroleum.com
BPCL's retail base was gradually expanded to cover the rest of the country,
emphasizing on penetration in rural markets and convenience retailing in semi-urban
markets. IOC also test marketed its fuels in Delhi for three months in mid-2002, and
in Hyderabad (Andhra Pradeshj.rbefore launching them on a national level. HPCL
also decided to retail its fuels from the Club HP outlets. IBP marketed its fuels in six
major cities at 34 retail outlets. By March 2003, all the companies were at various
stages of increasing the availability of their respective brands in different parts of the
country.

9 Knocking refers to the rattling sound originating from a vehicle's engine. It is caused due to
detonations as the unburnt fuel-air mixture gets ignited without the flame from the spark plug
reaching it. This.leads to reduced fuel economy, wear and tear and even engine failure. Anti-
knocking agents are chemicals that are added in the fuel to. prevent knocking. A fuel's octane
number is a)lptneric description of its ability to resist engine knocking; the higher a fuel's
octane number (or anti-knock index), the higher its resistance to knocking and vice versa.

82
 The Indian Petroleum Industry: Towards Branded Fuels

THE PROMOTIONAL EFFORTS

The maximum 'action' in the industry was seen on the promotional front. All the
companies were adopting various media mix tools to promote their brands. BPCL
launched a promotion scheme for Speed, under which anyone buying fuel worth Rs
60010 or more got a free BPCL Petrcoard." The company also gave its dealers better
incentives to sell the new fuel. A survey conducted by BPCL revealed that 44% of
customers were influenced by people at the petrol pumps, who convinced them to use
Speed. Keeping the importance of the dealer's role in promoting the product, the
company gave a significantly higher commission of around 80 paise per liter as
against the usual norm of 45 paise per liter for normal petrol.
To promote Speed, BPCL also entered into an association with the website,
www.hungama.com.Awebsite(speed.hungama.com) was launched that focused on a
motor racing event held in January 2003. BPCL also associated the brand with the
latest James Bond movie, 'Die Another Day' by becoming a marketing partner. The
company paid Rs 7.5 million for this deal, which involved a movie-related television
campaign and various promotional activities at petrol pumps. Winners were given
movie tickets and other James Bond merchandise (Refer Figure II).
Figure II: An Advertisement for Speed

Source: www.bharatpetroleum.com
IOC earmarked an advertising expenditure of around Rs 50-70 million for the
promotion and brand-building of these fuels. The company even planned a new set of
logos for these fuels. In order to create a synergy between product branding and
corporate branding, it used its house colors, blue and orange. This was expected to
enhance the recall value of the IOC mother brand and create a greater association of
the new products with the company.
Unlike the high-profile marketing campaigns of these companies, IBP did not
aggressively promote its products and services. The company limited its promotion
only to those outlets where the products were available. Commenting on this, a
company director said, "We are not making much noise about it unlike some of our
competitors. "

10 In March 2003, Rs 48 equaled I US $.

11 BPCL launched the petrocard in March 2000 aimed at identifying and rewarding customers.
It is a stored value smart card that facilitates easy payment for fuel and entitles customers to
various.;oenefits.

83
 Industrial Marketing

On the pricing front, all the companies seemed to be following a uniform policy; the
prices had to be kept comparatively higher to drive home the point that the fuels were
technically superior to normal petrol. However, it was also necessary not to let the per
liter price differential be very high, keeping in mind the novelty of the product as well
as the price-consciousness ofIndian consumers. Thus, Speed was priced only Rs l.25
per liter more than the conventional fuel.
The company felt this was justified, since customers using packaged additives were
anyway incurring a cost of around Rs 1.25 per liter of petrol. The other players also
adopted a similar strategy of priciIig the branded fuel marginally higher than the
conventional fuels. To respond to this 'similar price' move of the competitors, BPCL
reduced the price of Speed, making it around 30 paise cheaper than the branded petrol
of IOC and HPCL (Refer Exhibit II for prices of different branded/unbranded fuels in
four metropolitan cities).

SPEED LEADS

The initial response to these brands was quite encouraging. The marketing efforts of,
the companies prompted many customers to try out the fuels. In September 2002,
HPCL's Director (Marketing), N K Puri remarked that 40% of the consumers in
Mumbai and Delhi had already converted to branded fuels and that this figure was
expected to go up to 50-60% in the future. By January 2003, Speed accounted for 40%
of BPCL's petrol sales and the brand emerged as the market leader accounting for
around 50% of the branded fuel segment in Delhi. While Speed sold around 145
kiloliters (KL) per day, IOC's Premium sold around 90 KL per day, and HPCL's
Power, around 75 KL per day. Within a few days of its launch, IBP too claimed to
have received a good response for its branded fuels.
Soon after the launch of Speed, BPCL conducted a market research to find out
customer response to branded fuels. Based on a sample of 459 respondents from Delhi
and Mumbai, the survey findings were strongly tilted in Speed's favor, which scored
. much higher rankings than Power and Premium, in terms of various attributes such as
quality, mileage and lower emissions (Refer Table III). As many as 70% customers
agreed to have noticed a significant difference in the performance of their vehicles.
Interestingly, the customer base was not limited to premium end car owners, but was
spread across various categories including two-wheelers.
Table III: BPCL - Market Research Findings*
;<Attribute SPEED· POWER H: PREMIUM
Quality of petrol , 8:11 . 7.16 6.00
Mileage 7.85 6.90 6.05
Smooth numing 7.74 , 6.96 6.19
Engine protection 7.68 6.83 6.10
Being economical 7.47 6.53 6.00
Faster driving 7.63 6.64 6.09
Lower emission 7.51 6.63 5.59

Source: www.bharatpetroleum.com
* The numbers indicate comparative rankings given by the survey respondents to the
three brands on the attributes mentioned.

84
 The Indian Petroleum Industry: Towards Branded Fuels

In February 2003, Speed was selected for the 'Product of the year award' initiated by
the Overdrive magazine.'? Experts felt that BPCL's popularity was largely due to its
first mover advantage. But according to officials at BPCL, this was the result of the
company's strategic decision to market Speed only from its 'Pure for Sure' outlets,
which provided the assurance of unadulterated petrol. Although there were
competitors coming up with similar products having similar benefits, BPCL felt that it
'.was the 'Pure for Sure' assurance that made the difference.
Despite the impressive growth of the new fuel brands, industry observers claimed that
it was too early to classify the moves of petroleum companies as .successful.
Moreover, there were a few technical glitches associated with switching over to these
fuels. As the additive-enriched fuels freed up the deposits in the engine, there was a
danger of the fuel filters being clogged up. Ramesh agreed that customers might even
have to replace the filters after switching over to the new fuels.
Another problem was that customers needed to get the fuel tanks of their vehicles
filled with the new fuels at least a couple of times before any significant effect could
be noticed. These issues could pose problems in the future. Moreover, the price
differential was also a cause for concern. The companies were, therefore, trying to
communicate the value proposition of their fuels.
Commenting on the future prospects of the segment, analysts proclaimed that'
branding would form only a small part of the overall marketing initiatives undertaken
by these companies. Since there was not much opportunity for product differentiation,
marketing strategies could play a significant role in the success of oil companies.
According to Lal, "Marketing will have to encompass the entire value chain from cost
control to product life-cycle, positioning, brand building, pricing, credit control and
man management."
By March 2003, IOC's Premium had overtaken Speed, Power and Josh in terms of
geographical reach; Premium was available in 36 cities, while Speed, Power and Josh
were available in 27,21 and 6 cities respectively. IOC's Diesel Super was available in
109 cities while Turbojet and Shakti were available only in 3 and 5 cities respectively.'
IOC planned to increase its reach further, targeting metros, mini metros and highways.
The company was also planning to launch a full-fledged mass-media campaign on the
national level.
Considering that other companies were also planning similar initiatives, industry
observers commented that the struggle for gaining a larger share of the market would
intensify in the future.

Questions for Discussion:

I. Discuss the changes taking place in the petroleum industry in India with special
reference to the growing focus on marketing initiatives. What prompted the
companies to introduce branded fuels? Does the segment have enough potential?
Give reasons to support your answer.
2. How do value-added fuels benefit customers? Discuss the strategies followed by
major oil companies in India to introduce and build their respective brands,
commenting separately on each element of the marketing mix.
3. Discuss the factors which can hinder the growth and popularity of branded
petroleum products. In what direction do you think is the branded fuel segment
heading? Suggest certain measures that can be taken to ensure that these products
fare well in the market?

© ICFAI Center for Management Research. All rights reserved.

12 Established in the late-l 990s, the award is given to new products related to cars, motorcycles
and scooters, BPCL won the award for being the pioneer in launching high performance
petrol (Speed) in India.

85
 Industrial Marketing

Exhibit!
About Administered Price Mechanism
Till{1939, there were no controls on the pricing of petroleum products in Ingia. Between 1939 ang,
194 ,the 'oil c ies th.~mes maintaine9"pool acco fot: majducts'
i ntion byt ernmentp48, price re~ation wa m:.
gh! * the 'v,
Account' proced .' nder this, ization of oil companies > estricted to;ejmport
of finished goods plus excise duties/local taxes/dealer margins and,agreed.marketing margins of each
of the refineries. Any excess realization was surrendered to the government. The Shantilal Shah
Committee, set up in 1969, did not favor the import parity price being set as a benchmark: for
domestic pricing, as by then the domestic refining capacity had increased significantly. In 1976, the
I
Oil Pricing Committee (OPC) recommended the discontinuance of the import parity principle and
suggested that the domestic cost of production should be the determining factor for the pricing of
petroleum products. APM was thus established on the recommendations of OPC in December '1977.
The smooth implementation of APM was possible, as during this period, all the foreign oil companies
ha en acquired ~ythe goven ient, The sche was admil.li~l~r~ by the Ministry of :Pettol~~. 8§, .
Gas through its exceuti¥
""en••..•.••.•
, ":l;i'::~;',
fig, 'Oil'nationC6mIDittee'
~> '{'\?
(OC<Jl~}rjt.i%·
;':Y""':f:::tY1
11\) .

A self-balancing" system, the APM consisted'of a number of

oil 'pool a~~unts through"~lllch
subsidies on products such as diesel; kerosene and LPG were cross subsidized through higher
realizations from petrol. A cost-plus system, the APM was worked out on the basis of normative costs
plus a return on net worth/capital employed. This system of pricing was applicable for different
operations, starting from upstream oil production to marketing and distribution 'of products. It ensured
that oil companies recovered their costs and ~btailled an assured return on the capital employed.
Distnbutionand marketing companies were assured a 12% post-tax return. In order to ensure that
product prices from primary pricing points remained the same, the costs of operations of different
companies were pooled (irrespective of the s0-\l!cesfrom which they came). 'I1!us, the price of an
prq<\~ctat any' oeation same for.~i#;,coInpanies. ting in th ea ion. !3ypo .
lower cost of in ous crude e higher cost of imported de: domes es were i .
from the fluctuations in international prices. .
However, over the years, this system of cross-subsidy resulted in uneven increases in prices of
different products. For example, petrol was priced almost twice that of diesel. After-the liberalization
of the Indian economy in the early 1990s, policymakers felt the need to dismantle APM and free the
industry from all controls. In November 1994, the government set up' a committee under the
Chairmanship of BPCL's CMD, U. Sundararajan to provide a framework for the development of
Market Determined Price Mechanism (MDPM).
, {
.
MD.pM resulted in the opening up of the sector completely and APM being dismantled. As
all lestrictionspn exports and i1l]-JWrts
~ere re1l1q~ed.Restrictii on sourcin .type of c
the 'product patt~rn were alsoiemovect. In addi9-0n, oil com .es we to deckle e
development of itlfrastructure, the mode of transportation to be used,' the selection.of marketing areas,
to
the appointment of dealers/distributors and the anlpunt of commission payable intennediaries.·
Source: www.indiainfoline.com.
 The Indian Petroleum Industry: Towards Branded Fuels

Exhibit II
Prices of BrandedlUnbranded Fuels in India
BRANDIPRODUCT SELLING MUMBAI . DELHI CHENNAI KOLKATA
UNIT .0

Speed Liter 39.90 .34.80 37.70 35.80

BPCL Petrol Liter 38.59 \ 33.49' 36.39 35.00

\.

BPCLDiesel Liter 27.88 22.12 24.28 23.51

Power (HPCL) Liter 39.90 34.85 37.70 36.05

Turbojet (HPCL) -Liter 28.90 23.15 - -
HPCL Petrol Liter 38.59 33.49" 36.39 35.00
."
HPCLDiesel Liter 2~.88 . 22.12 24.29 23.51

IOCPetroI Liter I 38.59 33.49 36.39 35.00

IOC Diesel Liter 27.8,8 22.12 24.28 23.51

Source: Compiledfrom company websites (March 2003 figures).

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Additional Readings & References:

1. Volatility Reaches Indian Oil & Gas Sector, www.icraindia.com, March 30, 2000.
2. Pure For Sure' campaign by BPCL Gains Speed, www.blonnet.com, August 24, 2001.
3. BPCL's Premium-Grade Petrol on July 9, Business Standard, July 08, 2002.
4. The New Generation Fuel Speed - Launched in Delhi, www.expressindia.com. July 10,
2002.
5. Bharat Petroleum Corporation Ltd Launched its New Generation Petrol Called
Speed, www.rediff.com, July 24, 2002.
6. Indian Oil Industry: The Emerging Order, ICFAI press, July 2002.
7. Puneet Wadhwa, Speed thrills ... : BPCL Launches Petrol Variant, in.biz.yahoo.com,
August 8,2002.
8. Indian Oil Launches the Next Generation Fuels for Indian Vehicles - 'IOC Premium'
& 'Diesel Super', www.iocl.com, August 24,2002.
9·. HPCL Launches New Fuel Brands, www.hinduonnet.com.August 25, 2002.
10. Shweta Rajpal Kohli, Branded Petrol's Fuel Price War, Business Standard, August 27,
2002.
11. Noel C. Paul, Cleaner-Burning Fuels go Mostly Unnoticed by Drivers,
www.csmonitor.com, August 28, 2002.
12. Datta Sambit, IIPCL Taps Refreshment Firms For Club lIP Outlets,
www.indiacoffee.org, August 30, 2002
13. Shweta Rajpal Kohli, Branding the Oil Sector, August 31, 2002.
14. Speed Forms 35-40% of BPCL Petrol Sales, www.blonnet.com, September 25,2002.
15. Shweta Rajpal Kohli, BPCL Claims Top Slot in Branded Fuels, Business Standard,
October 26, 2002.
16. Shweta Rajpal Kohli, IDP Joins Branded Fuel Race with Josh, www.rediff.com,
November 12, 2002.
17. Kumar Y Bijoy, Is Premium Fuel Worth It?, Business Standard, December 5, 2002.
18. Indian Oil Marketing Firms May Blend Ethanol with Premium Fuels,
asia.news.yahoo.com, January 2, 2003.
19. The Speed Revolution, www.direm.com, January 3, 2003.
20. Shweta Rajpal Kohli, IOC to Roll Out Branded Fuels, www.business-standard.com.
January 04, 2003.
21. Kumar Harendra, Oil & Gas Sector: Triggers Aplenty 28 Sept 2002,
www.icicidirect.com, January 5, 2003.
22. Das Nisha, IDP Reworks Strategy to Emerge Leader in Petro-Retailing Sector,
www.domain-b.com. February 5, 2003.
23. Speed Awarded the Product Of the Year Award, www.domain-b.com. February 20,
2003.
24. IIPCL Launches Branded Petrol, www.carstreet.com, February 23, 2003.
25. IOC Working on Premium Pricing For Mumbai Launch, Business Standard, Mar 18,
2003.
26. www.hpcl.com
27. www.indiainfoline.com
28. www.bharatpetroleum.com
29. www.iocl.com

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