PETROLEUM RETAIL DEVELOPMENT

Index
•Historical perspective of Petroleum development in India
•Retail network planning / trade area & site identification/
• Petroleum Retail Management in India, Business Policy,Models
&Formats
•Petro Retail Asset Management&investment decisions(IRR/ NPV)
•Role of technology / IT in Petro retailing
•Health Safety & Environment
•Important Legal & Environmental issues applicable in Petro
Retailing
•Presentation Workshops / case studies/ field work
BRIEF INTRODUCTION Prof VP VERMA
QUALIFICATION 1. BSc ENGG. MECH.DOING PhD IN MANAGEMENT
2. MBA SPECIALISATION IN HRD MKT. (FMS DELHI)
3.PG DIPLOMA IN PERSONNEL MGT (FMS DELHI)
4. PG DIPLOMA IN LABOUR LAWS & IR(LAW INSTITUTE)
PROFESSIONAL EXPERIENCE OF OVER 40 YRS.
1. PRESIDENT OF NRI GROUP CO. FOR 5 YRS.
SET UP 10 CRORES PROJECT WITH FOREIGN COLLABORATION, EQUITY &
MARKETING NET WORK OF THE PRODUCTS.
2. INDIAN OIL CORPORATION / CALTEX LTD. FOR 15 YRS.
LOOKED AFTER CO’S OPERATIONS IN NORTH INDIA .
3. CROMPTON GREAVES LTD 15 YRS.
PROFIT CENTER HEAD AS GM/VP ON ALL INDIA BASIS. INCHARGE OF 500
CRORE DIVISION, 800 EMPLOYEES, INCHARGE OF MANUFACTURING,
MARKETING, FINANCE & PERSONNEL FUNCTIONS. REPORTING TO MD .
4. OWN BUSINESS 5 YRS.
*CHAIRMAN OF FINANCE CO- MANAGED TWO PUBLIC ISSUES OF 10 CRORES.
*MANAGEMENT CONSULTANCY TO INDUSTRIES.
*ACTIVELY ASSOCIATED- CORPORATE TRAINING/ MDP’s
TEACHING IN MANAGEMENT INSTITUTES AS VISITING FACULTY FOR THE
LAST 30 YRS.IN BOMBAY & DELHI.
6. ATTENDED SEVERAL MANAGEMENT SEMINARS/ PROGRAMS AT NATIONAL
& INTERNATIONAL LEVEL.EXTENSIVELY TRAVELLED ALL OVER
WORLD. EXPOSED TO MANAGEMENT PRACTICES OF REPUTED MNC’S
•This year India’s export earning estimated, 160 billion $, thus country
spends nearly 30% of its total export earning only in importing crude
oil, to meet country’s energy requirements, which poses a big burden
on our national economy, the current values are calculated at 70$ a
barrel
•During next 3 yrs after the recession is over, prices of crude oil are
estimated to rise to a conservative 100$ a barrel, which will increase
our foreign exchange burden by another 50%
•Taking a perspective of 5 to 10 yrs this figure is likely to rise to 150$
due to demand exceeding supply position Globally. Thus as a nation we
need to focus on alternative sources of energy,boost in domestic supply,
conservation & efficiency improvement devices to overcome this
serious problem, which otherwise may have a severe impact on our
development & growth of our economy
•Globally the current demand of petroleum products is around 3600
mmt & the annual growth rate is 1.2-2% PA. Advanced countries have
been focusing intensively on alternative sources of energy as well as
In India the demand growth rate has been 5 –6 % PA, whereas crude
production has remained stagnant. Nearly 60% of the Petroleum
products are used in the Transport & power sector, during the last 5
yrs, considerable amount of advancements have been made towards
these objectives, some important developments are as under –
Auto Sector
Development & use of bio fuels as alternative fuels – 10% can be
straight away blended for use in automobile sector, in European
countries much higher % is being used with minor modifications in
auto engines
Use of CNG / LNG in auto engines, cost of operation is almost 60%
Development of hybrid cars- mileage per lt will improve 3- 4 times
Use of hydrogen gas
Improvement in thermal efficiency of auto engines 5
Power Sector
Use of Nuclear energy in Power plants, India has taken important
steps towards this, here the capital costs are high & gestation periods
are double
Use of mini hydel stations for local area distribution. Capital costs &
gestations are both very high
Use of coal based thermal stations at the pit heads to minimize
pollution coal is converted into soft coal or gas based on new German
technologies
Use of electric trains instead of diesel engine
Use of solar energy for domestic & industrial applications
Use of non conventional & renewable energy- like wind, bio & waste
material 6
Role of Petroleum in our economy & brief Retail History of India in it
Oil & gas put together meet 60% of our commercial energy
requirements, again transport sector (rail, road, water & air & Power
sector) consume 60% of Petroleum products, balance 40% is used in
Petro chemicals, Plastic, fertilizers, pesticides & agriculture
Globally first oil well were drilled by Col Drake in Pennsylvania in
1859 & in India 1st oil refinery was built in Digboi in 1901 . So oil
industry is globally 150 yrs old & in India 100 yrs old. At the current
consumption rate the reserves will last us till 2050, unless thru’
technology & innovations we find new solutions, the energy position
will assume criticality decade by decade, this is a challenge which
managers working in the energy sector will have to handle with full
focus
Brief retail history in India is as under –
-1882 petro retailing started in India by standard oil co of USA, by
supplying kerosene 7
Historical perspective of Petroleum development
Understanding Demand & Supply position in the country
•Brief perspective of National & Global Business of Petroleum
products for better comprehension of the subject it will be worthwhile
to understand overall perspective
Estimated demand of Petroleum products in India 135 mmt
-Current refinery capacity 149 mmt
-No of refineries in India, public sector 17 no’s
- private sector 2 no’s
-Rough capacity distribution Public sector 60 %
- Private sector 40 %
-Current crude oil domestic production in India 35 mmt
- Imports 100 mmt
-1890 first oil was struck in India in Digboi
-1901 India’s first refinery was built at Digboi
-1950-55 refineries were set up by Burma Shell, ESSO & Caltex
-1956. Govt of India passed the Industrial policy resolution placing
Petroleum sector under public sector
-1958, 1st Public sector co was registered as Indian Refineries Ltd, on
down stream side & ONGC was established thru’ act of Parliament
-1959, 1st Marketing co was registered as Indian Oil Co Ltd
-1964, IRL & IOC were merged as Indian Oil Corporation
-1970, all foreign co’s were Nationalized & entire Petroleum sector
came under Govt control
-1975, oil coordination committee was set up on behalf of Govt to
have effective control on the entire industry, especially imports &
proper supply & distribution to conserve scarce foreign exchange 8
During past 6 decades size of industry has grown from 1950-51 ,at 3.5
million tons to 2008-09 to 134 mt,an increase of 40 times on account of
enormous growth in transport, industrial power & agriculture sectors
-1992-93,Govt initiated imp phase of deregulation & de liberalization,
with removal of controls on lubricants & importof bulkGases
-2001-02, process of liberalization to be completed by allowing foreign
& Indian co’s to invest in India in up stream & down stream sectors,
they were allowed to enter the Marketing operations, provided they
have an investment of minRs 2000 crores in infrastructure
-1.4. 2002 APM ( Administrative Price Mechanism) was notionally
dismantled to allow free hand to oil co’s to import & market petroleum
products in the country
- violent fluctuations in crude prices in international market & to
maintain socio economic stability Govt during last 7 years kept
control thru’ public sector co’s to regulate the prices of HSD, MS,
Kerosene & LPG & allowed to alter prices of lubricants, ATF & heavy
Major advantage of liberalization was flow of large amount of capital
by private & foreign co’s into the petroleum sector thus increasing the
enormous infrastructure of refining ( RPL & Essar import & marketing
of ), lubricant & petroleum gases by Caltex, Shell & other MNC’s.
Exploration by carion energy, IOC, RPL & few other MNC’s
-though RPL & few other co’s set up nearly 1400 retail outlets in the
country, but the marketing operation was not successful due to alarming
increase of crude oil prices in 2007-08, which could not be passed on to
the consumers due to Govt’s indirect control in pricing thru’ PSU co’s
which were compensated thru’ oil bonds worth several thousand crores
for keeping the prices under regulated controls due to political & socio
economic compulsions of the Govt.

10
Retail Network Planning / Trade Area & Site Identification/
Investment Decisions (IRR/ NPV)
Significance of network planning
8
In petroleum industry planning assumes critical importance because
of following complexities of business
-Multiple products requiring different facilities,vast area& population
-Multiple supply sources for different products
-Nature of products inflammable & volatile
-Diverse transportation modes (rail, road & sea)
-Regulated infrastructure (approval of explosives, weights & measures
& several local bodies like MCD, PWD, fire brigade dept etc)
-High capital cost on infrastructure & heavy over heads with low
margins & low returns
-Highly competitive environments 11
Distribution channels
Refinery Terminals
Port terminals
Installation / Inland terminals
Depots /LPG bottling plants
Stockist / Distributors / Dealers
Aviation stations
Consumer outlets
Retail outlets
Important analysis / data to be compiled for net work planning
Demand estimation / marketing plan
Infrastructures
Financial analysis
Manpower plans 12
Demand Estimation
To be compiled, sector wise, area wise for each project giving present
demand & projected demand for next 5 yrs eg demand for HSD for a
retail outlet, may be compiled as under
-No of private & commercial vehicles, passing on the routes
-Demand for agriculture sector, irrigation, sowing, harvesting
-Demand of product in industrial areas
-Misc customers like commercial establishments, fleet owners
-Competitors activities
The co’s are designing special schemes, incentives & host of services
as USP’s for attracting customers for long term relationships, like petro
cards, service coupons, lucky draw coupons etc
Infrastructure
Strategic location, proper layout with land, building, transportation &
No proposal of fly over or road widening
No open flame industry in the vicinity like foundry etc
Clear title, permissible by town planning
Meets requirement of explosives, PWD, NHAI & local bodies
Site & Road
Mapping of business infrastructure, competitors, future
developments, trading area upstream/ down stream, earth filling/cutting

Road openings for RO, position of dividers, no of lanes

Price differential due to state boarder in the vicinity
Distance from the supply point
Study of commercial/ industrial units in vicinity & their potential
Market intelligence – population count income & age profile,
Compliance of Explosive Rules
35x35 meter minimum plot size for NH
6 meter clearance around drive way, 4 meter around vent pipe
4 meter high vent pipe, 1.5 m above building
4 m clearance around fill points
4.5-6m canopy height
IRC guidelines RO’s should be 1 km away from check barrier, distance
between 2 RO’s & from the junction point min 300 m
Design of RO
With MNC’s & private players coming in market RO designs are
being modernized according to international practices & each co is
standardizing designs, color, symbols, shape & structure to
differentiate their brands & establish their unique RVI – retail visual
identity to improve their visibility in the market 15
RO’s are increasingly become a package of customer convenience &
services like ATM, Coffee shop, convenience store, wash facility, rest
facility, snack bar, car service facility as add on features. In case of
rural background, popular dhabas & over night facilities are common
features
This is coupled with several incentive schemes like Petro cards, fleet
cards, gift loyalty schemes have come in vogue to attract customers
In line with the international practices, whole idea is to create an
environment of customer experience & delight & meet his daily
requirements thru’ one stop shop to attract & retain more & more
customers. A study done in the western countries indicate that RO’s
designed on the above pattern generate additional 40% profit thru’ non
fuel activities, thus more & more emphasis is placed on such aspects
which go a long way in improving the financial viabilities/ return of a
RO project
16
•Petroleum Retail Management in India, Business- Policies
Practices ,Models &Formats
•Business overview
•Approx 45% of petroleum products including gas are sold thru’ retail
network which works out nearly 60 million tones & Rs1,35,000 crores.
A big size consumer market. The product is sold thru’ approx 33,000
RO’s which gives an average turnover of Rs 4 crores PA. The share of
business between co’s is (approx no) IOC-12,500; BPC-7500;HPC-
7500;IBP-3500;RIL-1400& others-600
•Retailing defined ,it involves marketing of products &services directly
to the users / customers for their personal & business use
•Retailing interphases with all customer related processes especially
supply chain mgt to create infrastructure to offer proper customer
service of global standard 17
Retailing Policies for different petroleum products
-LPG
-Bulk consumers receiving supplies from depot, terminals /refineries
-Domestic customer receiving cylinders from distributors
-commercial customers receiving cylinders from distributors /depots
-Auto gas – LNG, CNG from piped gas, commercial cylinders ,RO
-Kerosene/ mineral turpentine oil,
oil from depot /distributors
-Heavy oils from depots/ terminal/distributors
-ATF for civil & air force aerodromes from depots/ terminals
-Lubricating oils / special oils / greases - bulk supplies from depots/
terminals & retail supplies from stockist / distributors
-MS, HSD – bulk customers directly from depots / terminals.
-Small consumers, individuals, fleet owners from Retail outlets 18
Retail Formats,Business Policies in Petroleum Sector
Individual –DO-DO /RO/ Lube
distributor/SKOdealer
Partners-CoCo / CFA / Stockist
Business Industrial Houses-direct consumers (CO’s like Maruti,
Honda, Bajaj auto)
Cooperative - Agri, milk,seed etc
Govt Dept’s – like Railways, Roadways, Defence
Co-co –RO’ s,
Aviation stations Franchise
are treated as business partners
Proper Training to keep up the image of co
Compensation system based on Performance based incentive
scheme Business Formats
BtoB -bulk users ms , H SD,Lubes, Gases
Retail Franchise -DoDO ,CoCo ,CoCo
Investment Franchise-SKO ,Lube ,Distributor / Dealer
Viability (capable of normal gowth)of RO project
Over the years returns from petro retail business have become very
marginal as both the Capital cost & Working capital cost during last 2
decades have increased nearly 3 times, whereas commission has not
increased more than 50% despite pressure applied by trade on oil co’s.
 The viability of RO’s, under current envoirnment is dependant on
large volume of business generated out of high growth of automobile
industry to the tune of 15-16% PA , mechanization of agriculture sector
& self generation of power by commercial & industrial sector
Min viable sale of auto fuels & lubes for RO is 300 & 10 KL/mthResp.
In addition the RO should generate income of 30-40% thru’ basket of
services rendered like tire repair, spares, servicing & washing, lube oil
change, food & snack services, pollution control service, STD booth etc
Due to low margins major problem industry faces, dealers playing with
Quality & Quantity thru' adulteration & short supply to improve the
margins the quantum is estimated around 4-5% on a modest scale 20
Investment Analysis
General pattern of Cost & Revenues are as under –
Cost
Cost / rental/ lease charges on land, building,equipment, infrastructure
Working Capital cost of fuel, lubes & spares etc
 cost of electricity, water & misc services like maintenance/ upkeep
Staff & other Administrative expenses
Revenues
Sale of fuels, Lubes & spares
Income out of all other add on services
Financial Analysis – 3 Popular techniques
1.Pay back analysis. 2. Net present value (NPV). 3. Internal Rate of
Return (IRR) 21
Payback Analysis (example)
Suppose total cost of Project = 100
Income over yrs 1st yr-10,2nd yr-20, 3rd yr-30,4th yr-40 = 100
Pay back period = 4 yrs, which is a good pay back, if with in 5 yrs
Net Present Value (NPV)
It is the summation of present value of cash inflows in each year minus
the summation of present value of net cash outflows in each year,
mathematically – NPV = cash inflows - cash outflows

(1+K) T
We work out NPV on different discounting rates
Say 10,12,14,16 & the point at which the value becomes 0 or negative
Important Legal &Regulatory issues applicable in Petro Retailing
Introduction & Background
Upto March 2002 Govt controlled entire Petroleum Industry thru’ Oil
Coordination Committee (OCC) covering all upstream / down stream
activities like refining, import, supply & distribution, Marketing,
Intercompany transfer,Product- sharing ,. optimal use of infrastructure,
Pricing, Subsidies, In fact this is one of the classic example of efficient
Management of one of the vital sector of economy, wherein Govt
insured best possible use of scarce resources of petroleum products in an
optimal manner.
However due to regulated & controlled regime the growth of indigenous
resources like production of crude oil & petroleum gases remain
stagnant as no big private/ international players were willing to invest
huge amount of funds without full freedom to do business, which
resulted in huge burden of importing nearly ¾ of country’s crude oil
requirement at exorbitant cost of nearly Rs2.5 lac crores PA which
drains away nearly 1/3 of our country’s total foreign exchange earned by
This method is superior as while deciding the discounting factor for
future income one can take into account- cost of inflation & money into
account to assess the viability under current business environments cost
of inflation is about 5% & cost of capital around 12%, thus a
discounting factor of 5+12=17% should pay back in 4-5yrs
Internal Rate of Return (IRR)
It is the discount rate that generates zero net present values for a series
of future cash flows mathematically it can be calculated as under-
CF1 + CF2 + ----- + CFn – CF0 = 0
(1+r)1 (1+r)2------+ (1+r)n
Thus NPV gives discounted value of a streams of cash flow generated
from an investment, IRR computes the break even rate of return where
inflows & out flows match with each other
Thus to accept a project IRR should exceed the cost of capital & reject
if it is less thanthe cost of capital 23
•As a result of deregulation most of the big international co’s / large
business houses have entered this industry despite several handicaps
posed by PSU’s & Govt restrictive policies, this is because Indian
economy has been growing at an enormous rate of 8-9 % during the last
over 5 yrs & promises to become one of the 5 largest economies of the
world in the next 20 yrs.
•Govt has planned to control this important sector by setting up a
petroleum regulatory board, which will regulate the entire industry by
covering all aspects like refining, processing, storage, transportation,
distribution & marketing activities of petroleum products excluding
production of crude oil & natural gases , which is being regulated by the
Govt by inviting global bids under a separate policy of National
exploration & licensing policy ( NELP) which is in operation over more
than a decade & shown considerable promise
•It must be remembered that investments required are very large (over
Rs one lac crores have been invested in the last 4-5 yrs) & the gestation
periods are large, the country should start getting the results of intensive
steps from yr 2010 onwards 25
Position after Deregulation ie 2002 till date
Petroleum prices have tremendous effect on socio economic &
political environment in the country. Govt have been going slow in
allowing free market mechanism in pricing the vital products like MS,
HSD, Kerosene & LPG, which nearly constitutes 70% of the market
value & have tremendous effect on inflation & cost of living. The
control is being exercised by setting up a planning & analysis wing
under the control of Ministry of Petroleum. However other products
like lubricants, ATF & heavy oils&bulk import &saleof Gases made
free.
In order to make up their losses oil co’s have been steeply increasing
prices of above products causing lot of turbulence in industry specially
impact of ATF prices on aviation sector, which this yr has recorded a
loss of over 10,000 crores As a nation,we have to find a optimum
solution to our EnergyNeeds .Overall this makes a challenging case
study for management students to make a thorough analysis of
available options & suggest a workable plan for the nation 26
Formation & Role of Petroleum Regulatory Board
Important Functions
•Protect interest of consumer by establishing fair trade practices
amongst all oil co’s
•Authorize co’s to produce/ procure market petroleum products/ gases,
insure adequate availability & equitable distribution
•Monitor prices, prevent profiteering & shortages
•Display of maximum prices by retail outlets
•Regulate & enforce retail & marketing services obligations of the co’s
•Establish & Operate LNG terminals for marketing the gas
•Declare pipeline as the common carrier, fix transportation rates & fair
access to all users
•Establish mechanism for sharing infrastructure & products for
distribution most economically 27
•Maintain data bank & information regarding all petroleum products
•To adjudicate & decide all disputes relating to all activities of refining,
processing, storage, transportation, distribution & marketing of
products
•Receive and redress complaint of consumers
•Powers of the board – vested with full powers of civil court to
summon, receive & record evidence, witnesses, documents & give
judgements as per law of natural justice
•The board will have powers to pass orders, impose fine & penalties &
insure compliance
•Obligations of Entities obtain prior authorization before commencing
any activities related to marketing of notified petroleum products
•Maintain records, allow inspections file statements as specified by the
board 28
•Fulfill obligations regarding use of common infrastructure & product
sharing agreements, which are in the overall interest of economical &
efficient distribution of products for the consumers
•Power of Central Govt. Act provides powers to the central govt to
issue directions to the board in public interest & in case of any special
circumstances by issuing a notification take over management of any
activity or suspend any operations for a specified period in the overall
interest of the country
Environmental Clearance
Govt has set up Pollution Control Boards to control damage to the
environments thru’ unregulated & untreated affluent & air, for which
norms have been laid down for compliance
Accordingly refineries, terminals, LPG bottling plants, Lube plants,
Aviation stations & retail outlets have to comply with these regulations,
especially discharge of affluent, disposal of sludge &waste gases 29
Clearance of local urban bodies / Magistrate –
For putting up any petroleum installation, including retail outlet,
approval of, concerned DM is required, who in turn obtains NOC from
departments like PWD, Police & fire fighting department, such NOC
also forms basis for obtaining explosive license
Explosive license
Petroleum installations are governed by Petroleum rules 1976, with
regard to storage handling, processing & transportation of products.
These rules are enforced by Chief Controller of Explosives, Nagpur,
with the help of Regional Controllers. It is mandatory to obtain
approval of lay out, design & construction material to be used in the
plant ,RO,s & also tank trucks used for movement. Rules also laid
down for fire fighting equipment for such purpose
Controllers carry out periodic inspection for compliance of safety rules
30
Factory Act 1948 / Shop & Establishment Act
•Petroleum establishments mentioned above employing more than 10
workers with use of power have to register themselves under Factory Act
•The Act regulates safety provisions, house keeping, working conditions
in the plants & submission of periodic reports & maintenance of records,
periodic inspections are carried out by the factory inspectors to ensure
compliance
License under Central Excise & Customs
•Establishment handling, import, export & domestic sale have to obtain
above license for payment of excise & custom duty as per the law
•Products are allowed to move from one storage point to another under
bond & the duties are paid at the time of sales transaction
Registration under State Sales Tax & Central Sales Tax
All the sales point have to obtain above registration & pay tax to state or
central govt based on sale made in the state or interstate. 31
The schemes are being merged under a common tax system called
either VAT or GST, which will simplify the tax system & bring it under
one common tax, this will be applicable in about a years time
Weights & Measures Act
This step ensures “Right Quantity” to the buyer. Since the margins
given to the trade are very low around 2-2.5% on gross sales. The
easiest way to make fast money by under weighment & adulteration.
Historically trade generally connive with the regulatory agencies to
achieve these objectives.
In recent years Oil Co’s have played focus on consumer protection
thru’ “Q & Q” which stands for right quantity & quality & it has been
made as a slogan in their sales drive & promotion plans.this has been
improved by making the equipments Tamper Proof & rigorous checks
& controls, this is further reinforced thru’ consumer education
programs
Every state has a weights & measures department which checks the 32
accuracy of delivery equipments like dispensing pumps, flow meters,
tank trucks & checking equipment like 20, 10, 5, ½, measures & stamps
them every year for accuracy. The consumer can also check the
accuracy of correct quantity with these appliances.
CONSUMER AWARANESS IS MOST IMP TOWARDS THIS
Statuary approval for Retail Outlets
•Clearance of local bodies-Pollution, Fire Dept, Police, Town Planning
•Layout, design, approach-PWD, Town Planning
•Pollution Control/ Environment clearance
•Explosive license under petroleum rules 1976
•Registration under Factory Act/ Shop & Establishment Act
•Registration with Sales Tax
•Registration with weights & Measures for annual checking/ stamping
33
 Safety Health & Environment
Oil Industry Safety Directorate
Govt of India has set up a Safety Directorate under the code of OISD to
deal with safety issues of oil industry. Safety codes have been developed
for Exploration Refining & Marketing Activities, Directorate thru’ its
inspection team directs & guides co’s for compliance of safety codes &
practices. Safety codes come into play in Planning, Building &
Operational Stages & Act As a Regulatory Authority
Important Laws which control safety health & environment aspect.
•Explosive regulations under Petroleum Rules 1976
As per these regulations petroleum products have been divided into 3
categories, dangerous petroleum ( DP), which includes MS & related
solvents, non dangerous petroleum (NDP) which include kerosene, ATF
& HSD, Heavy Petroleum, which include & heavy oils.
Separate rules with adequate precautions for safety & health have
provided for receipt storage & dispensing of theses products, prior
approvals of lay out & specification of equipment, type & quantum of
fire fighting equipment are mandatory before installing any facility for
handling petroleum products
Periodic inspections are carried out to ensure compliance
•Clearance from local bodiesPolice, Fire, Pollution, Town Planning
Dept In view of hazardous nature of products 3 depts have laid down
separate rules for compliance with safety & environmental
requirements, prior approvals are therefore mandatory for location, lay
out, type of storage, & dispensing facilities along with safety
provisions, before setting up any facility
•Factory Act/ Shop & Establishment Act.Applicable where 10 or more
workers are employed & working process is carried out with the help of
power or 20 no’s without the help of power. The Act makes adequate &
mandatory provision for health safety & welfare of workers under
section 7 to 34 & holds the management responsible for compliance.
Major provisions are summarized below 35
•Material handling equipment to be checked by a competent person
once a year & record maintained
•Keep dangerous pits, sumps, openings properly closed. Maintain
floors, stairs obstruction free
•Provide goggles/screens for protection of eyes against fumes, gases
dust
•Provide adequate fire fighting facilities & training to staff in handling
such equipment. Conduct periodic fire drills
•Appoint separate safety officers for plants of 1000 workers or more
•Factory inspectors empowered to inspect units to ensure compliance
Welfare Measures (Sec 42-50)
•Facility for storing of working clothes
• First Aid facilities, minimum one box for 150 employees
•Medical room with trained staff where 500 or more no employed 37
•Health measures
•House keeping & cleanliness of premises with adequate arrangement
of waste & effluents (section 11 & 12)
•Proper control of ventilation, temperature & humidity (Sec 13,15)
•Prevent accumulation of dust & fumes (Sec 14)
•Minimum work place for each workman – 14.2 cu m (Sec 16)
•Adequate lighting & proper drinking water (Sec 17,18)
•Proper latrines, urinals &spittoons (Sec 19,20)
Safety measures
•Proper fencing of moving machinery
•Safe working pressure for pressure vessels
•Children below the age of 14 not to be employed 36
•Hygienic Canteen facilities where 250 or more employed
•Proper Crèches where 30 or more women are employed
•Appoint welfare officer where strength is 500 or more
•Rules pertaining to working hours, rest intervals, shifts & over time
are prescribed to avoid excessive fatigue
•Employee State Insurance Act 1948, regulated thru’ ESIC
•Child Labor (Prohibition & Regulation) Act 1986
child means a person who has not completed 14 years of age& not
allowed to be employed.
Employee Provident fund Act 1952.
•Applicable to all establishments employing 20 or more employees
•This is a welfare scheme in which both the employer & the employee
contribute 12% of basic + DA salary to a Govt fund which is payable
after retirement or death 38
Payment of Wages Act 1936 & Minimum Wage Act 1948,
•The scheme has now been modified to include family pension & life
insurance to take care of financial needs in case of pre mature death
•This lays down the wage period & mode pf payment without any
unauthorized deductions.Employers are not allowed to pay below the
minimum wage prescribed by the Govt for different States
Workers Compensation Act 1923
•Deals with compensation to workmen & its dependants, in case of
accidents causing disablement & death during course of employment
Payment of Bonus & Gratuity Act, 1965
•Prescribes minimum & maximum bonus & linking it with profit of the
co, however as a welfare measure the minimum bonus of 8.33% has
been made compulsory , even if the unit does not make an profit. The
max limit has been fixed at 20%for profitmaking units 39
•Payment of Gratuity is payable where an employee has completed
minimum 5 yrs of service. The amount is to be calculated @ 15 days
per year of service,subject to max limit
ESI Act 1948
*This provides medical relief, sickness benefits,
maternity benefits to women workers & pension to dependants of
deceased workers & compensation for employment injuries & disease
*This is a contributory scheme, where the employee
contribution 1.75% of wages & the employer contribution is 4.75 of
his wages
Summation
There are nearly 110 labor laws in our country out of which more than
20 are related to health, safety, welfare of employees. No other country
in the world has so man laws, but the irony is that due to mal practices
& poor compliance the ground situation is not very healthy. Except for
few large co’s & organised sector which pay full attention to these
important aspects. The others mostly small, medium & unorganized
sector which cover more than 80% of the work force need lot of
Environmental Pollution in India
Rapid growing population & economic development are leading to
environmental degradation in India, thru’ uncontrolled urbanization ,
industrialization & destruction of forest.
India has 18% of world population & 2.4% of worlds area, which
greatly increases the pressure on depletion of the natural resources &
increase in pollution rate
One of the major source of pollution relevant to our subject of retailing
of petroleum products come out of vehicle emissions using MS &
HSD as fuel. During the last 10 yrs the automobile industry hasbeen
expanding @ 15-18% PA & the current market ,addtion is 15 lacs four
wheelers PA & 120 lacs two & three wheelers. Nearly 60% of vehical
population is in 5 metro towns of Delhi,Bombay, Bangalore, Madras &
Calcutta,where pollution level are alarmingly high
The emission pollutants are CO, HC, NO & SPM(suspended particle
matters). In view of out dated process designs in our refineries, 41
Quality of auto fuels have been so poor that we were producing nearly
20 times more pollutants in vehicle emissions in India than the western
standards, this resulted into an alarming situationThis is further
compounded by outdated vehical engine design.
To control the alarming situation Govt of India set up Pollution Control
Board in 1974 to deal with pollution aspects of major areas like air,
water, noise & disposal of waste. It set up air quality monitoring stations
in 18 major cities of the country where quality parameters like CO,
Ozone, SO2, NO2 & SPM were measured on day to day basis. The board
set up environmental standards, the average figures are as under
SO2 60 mg/cu m
NO2 60 mg/cu m
SPM 140 mg/cu m
CO 2 mg/ cu m
Lead 0.75 mg/cu m 42
Accordingly environmental standards for vehicle exhaust were set up to
control the quality of air pollution. Currently we are at Bharat stage II
Passenger cars CO HC+NO SPM
Bharat stage II 2.2 0.5 effective 2003in metros
Bharat stage III 2.2 0.35 effective 2010in metros
Bharat stage IV 1.0 0.18
Diesel vehicles
Bharat stage II 4.0 1.1 7.0 0.15
Bharat stage III 2.1 1.0 5.0 0.10
Bharat stage IV 1.5 0.96 3.5 0.02
Two / three wheelers
Bharat stage II 1.6 1.5
Bharat stage III 1.0 1.0 43
Environmental standards for auto fuels- Pollution Control Board has
progressively improved the standard of auto fuels over last 15 yrs to
control pollution. Important parameters for MS & Diesel are as under
Diesel 2000 2005 2010
Sulphur % 0.25 0.05 0.035
Cetane 48.0 48.0 51.0
MS
Sulphur % 0.10 0.05 0.015
Lead 0.013 0.013 0.005
Benzene 3.0 1.0 nil
Role as a citizen Do you need to drive to work – use public transport,
bicycle, walking, car pool, keep fuel & air filter clean, remove carbon
from silencer, maintain proper tyre pressure.Periodic pollution check
Use of Bio fuels – Ethanol, bio diesel & petroleum gases, in metro’s 44
 Petro Retail Asset Management
Helps to understand process required to establish a new Retail outlet.
Important steps are as under –
Understand Market potential –market survey of area where RO planned
by preparing a area map, highlighting major consumers
 Trading area selection & market potential mapped
 RO of competitors marked with marketing data’s & USP’s
 Proposed location of RO is marked with details ofaproach roads
 Stdy traffic count & estimate business potential
Important parameters of suitable Site
 No HT cables passing over the plot
 No big drain at approach
 No land filling & no encroachments 45
•Recent trends in retailing business in India & abroad is to identify
customer needs of consumer products based on location factors &
provide a basket of fuel & non fuel products & services so as to
increase volume of business / foot falls in business premises & thus
improve overall profitability of operations
Changing Business Scenario –shifting of Emphasis from Product focus
to Customer Focus
After liberalization of economy in late 90’s most of the world class
Multinational Oil co’s re entered the Indian market to share the growth
opportunities of one of the fastest growing economies in the world for
want of infrastructure support which is monopolized by PSU co’s &
Govt’s indirect control on prices of essential politically sensitive
products like kerosene, diesel, domestic LPG & gasoline, most of them
have entered in lube, bulk gas supply & oil exploration, with only a
show case participation by setting up few RO’s of international
46
standards for MS & HSD to establish their brand identity & offer
international ambience & experience to Indian customer
Change in Marketing Philosophy- Commodity selling to brand building
Earlier PSU co’s were selling products thru’ RO as commodities
without emphasizing on quality aspects & customer satisfaction.
Foreign as well as Indian co’s have quickly responded to the market
needs & redesigned their products into special brands to suit high tech
auto segment with emphasis on better mileage thus offering value for
money, in turn they have improved their margins by 5-6% as mark of
innovative marketing
Emphasis on Quantity & Quality (Q&Q)
One of the major arrears of customer dissatisfaction in pre liberalization
period was dealers manipulation to improve his margin thru’ short
supply in mass scale adulteration with adoptation of new technology &
work culture co’s have reoriented their marketing strategies to win
customer confidence thru’ delivering right-Q&Q which appears as 47
slogan boldly displayed with full visibility at RO’s
Value added Services to meet variety of customer needs
•Drinking water, Air, first aid & toilet facility
•Tyre repair & supply service
•Car washing / servicing /minor repairs & spares/
•ATM/ credit card/ cash card facility 48
Fulfilling Wider basket of Customer needs
RO’s in Metro & major Urban towns are being upgraded to meet wider
customer needs to encourage more frequent visits thus increase foot fall
which is the basic need of any activity following facilities are added in
addition to traditional ones mentioned above
•Convenience store with chemist facilities
•Fast food, Indian food, tea, coffee & soft drink vending machines
•Loyalty programs & bonus schemes for long time regular customers
•Fleet owners schemes
•Trained staff to render efficient service thru’ courtesy & warmth
To sum up co’s have designed mktg strategies to build Brand
Equity for long term business gains – thru’ favorable image of 360
degree service & customer satisfaction by –
•Redesigning product mix of 4P’s- product, positioning, pricing &
promotion as under- 49
•Products – branded high performance products, Q&Q assurance, value
added services, basket of customer needs & services
•Positioning- customer focused, excellent service & ambience
•Pricing- loyalty, bonus & incentives schemes to attract & retain long
term customer promotion
•Promotion- Highlight brands, Q&Q assurance & USP’s thru’
campaigns, slogans, aesthetics & ambience
Advertisements
•Institutional- built org image,values,customerservice,
socialresponsibilty
•Strategic- long term plans, targeted segments
•Niche Marketing- promote branded products for better performance
Creating USP’s- customer focus, reliable & wide network, international,
quality standards- ISO, ISI, loyalty programs for long term retention 50
Role of Technology / IT in Petro Retailing
What is Technology it may be defined as a science which combines
Knowledge, Process, Methods & Systems employed in Achieving
Efficiency & Effectiveness of any business operation
•It consists of three important activities- Hardware, Software & Human
skills, all need to be blended properly to obtain optimal results
Changing Business Scenario Emphasis from low tech to high tech
operations
•After liberalization of economy in late 90’s most of the world class
Multinational Oil co’s re entered the Indian market to share business
opportunities of one of the fastest growing economies in the world .
•Emphasis shifted from product selling to image & brand building
•Product distribution to winning customer loyalty
•From low tech operation where there were opportunities for
manipulation at every stage of product handling to high tech
computerized monitor & control system to ensure right Q & Q 51
•International competition has brought in new business models in retail.
The emphasis has shifted from selling commodities at lowest price to
promoting brands with higher customer value & better realization
•Thru’ standardization infrastructure, automation & world class
ambience have completely professionalized retailing business with focus
on reliability, speed & convenience.
•New models of retailing business by adding a basket of consumer
services
•Technology oriented Value added Services to meet variety of customer
needs like self tracking, loyalty & bonus schemes, automated car
washing plants & ATM banking operations 52
•To improve efficiency & effectiveness co’s have brought in
automation in retailing, important systems are based on -
Product delivery management systems
Retail outlet automation
Fleet management systems
Product delivery management systems provides secured supply chain
system for transfer of product from storage points to retail outlets &
backward integration with value added services provider
•Retail automation system provide reliability convenience, speed thru’
visible & computerized product delivery & accounting
reduce fuelling time, thru’ automated delivery system
-acceptance of different modes of payment
-remote monitoring & control
-better management of assets thru’ automated monitoring/ controls
• Fleet management systems thru’ computerized loyalty bonus,
Use of New Technologies for better Customer Service & Satisfaction
•International level technologies have been brought in service to
achieve this objective ER,-for foolproof Supply chain.To ensure
reliable Q&Q, important technology inputs has been built into the
retailing system to make customer service a world class experience.
•Traditional dispensing systems replaced with automated & visible
recording systems
Automated premix pumps for mixing lube oil & petrol for 2 wheelers
•New generation electronic pumps have digital display & pre set
arrangement for quantity, rate, value making transactions speedy &
reliable multiple hoses with automatic cut off nozzles make tank filling
fast & safe
•Air gauges with pressure pre set & auto cut off make tyre inflation
convenient & accurate
•Auto tank gauges for accurate accounting, vehicle tracking & loyalty,
incentive programs to enlist & retain long term customers 54
•Dispensing units are equipped with card readers to handle payments by
cash card, smart card, debit card & credit card, to create better customer
convenience
•Technology has made it possible to provide value added service like
ATM, auto car washing, automatic car gauging & fuel replenishment
thru’ online replenishment system
•From economics point of view,experience of western countries
indicate that contribution of margin on account of non fuel,vailue added
services is to the tune of 40%to45%of gross earing in Roswhich
substantially improves its viability as well as customer service
Thus we have moved into a new era of customer delight thru’
reliability convenience & speed of service thru’ modern technology
at par with international standards 55
 Customer Relation Management
•One of the strongest USP in Petro Retail Marketing is winning customer
loyalty thru’ better service & trust in Q&Q & thus the emphasis after
opening of the economy, when many private & MNC players have
entered this sector in the country has shifted to Customer Relation
Management, it is therefore important to understand this concept & its
role in Petro Retail Marketing
•Before deregulation ie till 1991, PSU had monopoly over the trade 7
the emphasis was on product supply & distribution to meet the basic
requirements in the remotest area in vast country like India. Since it was
primarily a sellers market hardly any attention was paid to quality of
service & customer satisfaction, over a period of 40 years of this regime
lot of mal practices crept into the trade & Q&Q became questionable
resulting in exploitation of consumer
•After deregulation from mid 90’s over a dozen large co’s & MNC’s
entered the market & thus the market scene in the country has started
changing at a fast pace. PSU co’s are gearing up to face the 56
 competition has shifted to customer service giving momentum to the
concept of CRM in the Petro Retail Business which revolves around
working out a Business strategy to win customer loyalty & retaining
him for a lasting time .Thus emphasis has shifted from Product to
Customer to Brand & Trust Building thru marketing Philosophy that –
• Total focus on customer satisfaction & delight thru’ a package of
services & related conveniences including Petroleum products so as to
give an ambience of desirable shopping experience thereby increase
footfall & overall revenue. Package of services may include auto related
services like – vehicle cleaning, washing, servicing, repairs, tyre
services, pollution check, auto spares, battery services & non fuel
services like tea, coffee vending, fast food, in case of high ways –
economical Indian food, departmental stores, ATM, tele booths.
Statistical data shows that contribution of margin can be as high as 50%
from services in case of a well planned RO, thus greatly improving the
viability of over all business
57
•Cost of winning a new customer is much higher than retention
•Bottom line can be optimized thru better Revenue thru effective CRM
•Use of higher technology to enhance customer satisfaction-Automated
Dispensing,Visible recording & Billing, credit card schemes to
facilitate easy payments,incentives & rewards for long term relations
•Use of E-commerce for better customer service at lesser cost
•Use of efficient supply chain system to optimize total business cycle &
return
CRM & its 4 Stages / Steps of Implementation
First stage build business strategy with customer as nucleus & not on
traditional concept of profiteering Business plans / activities should be
worked out based on market analysis / customer needs & locational
factors, keeping following goals & objectives in mind
•Shift organization focus from product to customer orientation 58
•Identify customer package of needs, both current & anticipated &
build your business plans around a wider basket so as to increase
retention
footfall & hence the revenue & over all bottom line
•Delivery of high quality customer experience consistently & build a
brand image some thing like Vishal Mart, Spencers, Big Bazaar, Wal
Wal Mart, Marks & Spencers
•Continuous learning about customer & communication across
organization for better acquisition & retention
•Improved cost management & value for money for customer
•Customer service should reflect in all business activities identify
problems which cause customer dissatisfaction & build remedial
measures in all stages of business activity
•Measure customer satisfaction level thru’ periodic survey’s & feed
back systems & maintain level at 4 + on a scale of 1:5 59
•Good communication & transparency both within the organization &
out side world – customers, vendors, suppliers etc
Focus on on revenue maximization thru’ customer delight rather
than cost cutting
•Successful CRM policies, focus on Q&Q of revenue which is achieved
thru’
•Customer loyalty
•Customer profitability
•Customer lifetime value
•Return on CRM investment
Thru’ above data co’s billed total customer life time philosophy
Create customer focus organization
To make organization customer centric following steps are important -
•Align channel & business processes based on customer profile / needs
•Align organization to provide value to customer –employees who deal
with customers must be given authority & tools to respond to customer
needs properly & timely.
•Integrate Technology with business processes in org to understand
customer needs better throughout their life cycle & give co 360 view of
customer needs& customer gets full access to cos products &services
reaching an ideal solution of mutual satisfaction – Ultimate goal of CRM
CRM & Related Problems in Implementation
•Criteria of level of service - Customers have different needs,
expectations & add different values to business. It is not practical to give
top level service to every body. Co’s have therefore to strike a balance
between needs value & cost of service, by segmenting customers based
on their value & importance to the business. However it has to maintain
reasonable level of service to give customer feeling of value for money
& to maintain its credibility & brand image in the market 61
•Practical approach to start CRM in Small Steps &gradually take it to
full scale - unlike the developed countries where CRM has helped
businesses to reach a stage of maturity. We in India are in transition
stage shifting from Product to Customer Orientation in all stages of
business activities so as to build environment of trust & loyalty in
business relation ship. Practical approach is to start in small steps, build
& test limited solutions & thus keep building in stages till optimum
solution emerges
•Biggest challenge in implementation is change in out look of People –
for more than 50 yrs we have operated in product culture, thus transition
to customer & service culture requires lot of reorientation of thinking,
behavior & honest dealings –a glaring example is our food product
industry where adulteration is rampant despite regulatory measures,
even in the Petroleum industry, both Q&Q have been questionable in
almost all the petroleum products – auto fuels, LPG, Gas, Lubricants &
Industrial fuels. Oil co’s are taking all round steps imbibe CRM in the
marketing activities by training & reorienting the employees attitude 62
introducing fool proof technological steps to ensure proper Q&Q, up
gradation as per international standards & creating customer awareness
& education program thus progressively moving towards an effective
CRM program in petro trading
As student of management you should take a resolve to take this
program of CRM & customer orientation & service to its ultimate goal
of achieving a perfect blend between the service provider & the user
for their mutual benefit

63