Optimistic About Going Into Deregulation
By U Sundararajan, Chairman & Managing Director, Bharat Petroleum Corporation Ltd.
 
 

Today the oil industry is on the threshold of deregulation. The emerging competition will bring dramatic changes in the marketplace. Some initiatives being taken by BPCL to succeed in a deregulated environment.

Firstly, this is a growth industry. Worldwide demand for hydrocarbons has increased from 4900 million tonnes in 1990 to nearly 5700 million tonnes in the year 2000. Based on this rate of growth, the demand in the year 20 I 0 would be of order of nearly 6600 million tonnes. Much of the incremental demand is coming from Asia. According to British Petroleum 20 years ago, one barrel out of 20 produced was consumed Asia. Today, it is one barrel in four and by 2010 it is expected to be one barrel in three! Within Asia, the largest growth is happening in India and China.

Oil prices, however, are volatile and unpredictable. Globally oil prices have fluctuated from a little over $ 10 a barrel in March 1999 to $ 37 in early 2000. As on September 10, 2001, oil was at $ 27 a barrel. Expectations were that the recent developments in America would harden prices; however on September 24, prices crashed to $ 22 per barrel. India has very little control on prices and we are essentially price takers. Increase in crude price, coupled with the declining value of the rupee has a direct bearing on domestic prices and consequently, on demand.

Even though India is among the top ten oil consumers in the world, our per capita consumption is amongst the lowest. Per capita consumption of hydrocarbons is 113 kilograms of oil equivalent (KgOE) as against the world average of927 of KgOE. This yawning gap shows how much potential there is for increase in consumption with growth in GDP and a corresponding increase in individual prosperity, more and more people will have the ability to buy more and more energy. Also, people will consistently graduate to more convenient and cleaner forms of energy. This growth potential presents a great opportunity.

Between 1994-95 and 1999-2000, the growth in demand for petroleum products was between 6% and 11 %. However, during the year 2000-01 the growth was only 3%. Though the current slack in demand does have implications in the near term, in the long run it is not a cause for concern. A similar situation prevailed even during the period 1991-1993 when growth rates were only around 3.4% growth was revived in subsequent years. It is expected that once economic growth picks up, the demand for petroleum products too will increase.

Of particular significance are the trends in Diesel, which constitutes about 40% of the total consumption basket. During the past few years, the growth in this product was in the range of 6-8% However, during 1997-98 and 1998-99, growth was hovering at around 3%. During 2000-01, for the first-time in recent years, a negative growth has been registered. Of this trend continues, it could have an impact on the network expansion plans of the oil industry.

As against the total consumption of approximately 100 million tonnes of petroleum products (including imports and sales by private parties) during 2000-01, the country's installed refining capacity is 112 million tonnes. Thus, from a position of being short on refining capacity since independence, India today has surplus refining capacity. The surplus refining capacity will tend to increase the export as well as reduce the refinery through put. As far as BPCL is concerned, even after taking into account the production of the Numaligarh and Kochi refineries, we will still be slightly short on refining capacity. 

Due to our customer centric strategies. BPCL has consistently been performing well. During 2000-01, the refiner's margin went up by 35% to Rs.9551 million. Against the industry sales growth of 3%. BPCL registered a growth of3.6%. Market share increased from 20.66% to 21.43%,Over the last five years, throughput per outlet, a critical indicator of efficiency the retail network, increased by 13.2% as compared to 5.6% for the industry. During 2000-01, BPCL outlets sold an average of 183.5 tonnes per month. This was higher than industry average of 164 tonnes per month by -nearly 11.7%.

Profit after tax for the year increased to Rs.8201 million registering a growth of 16.5%. Earnings per share were Rs.27.34. BPCL's compounded annual growth rate for the last 5 years, in terms of sales volume and net profit stood at 5.26% and 17.34% respectively. During this period, BPCL consistently earned a return on net worth of more than 21%.

During the first five months of 2001, BPCL's refinery throughput was 3.72 million tonnes, 11% higher than the corresponding period of the previous year. During the same period the market sales at 8.02 million tonnes registered a growth of about 0.85%. Two years ago, I had shared with you the safety management system at BPCL's refinery achieved a 'Level 7' rating under the International Safety Rating system (ISRS). Due to the persistent efforts of the state the Refinery has recently achieved a 'Level 8'. Only 8% of the 225 refineries in the world using ISRS, have been able to achieve this rating. It is the highest rating achieved by any refinery in India. In marketing and at the refinery, we have recently concluded long term settlements with the unions. These settlements are for 10 years.

As of today, only 4 products, namely Motor spirit, High Speed Diesel, LPG and Kerosene remain under the administered pricing mechanism. These products are also due to be decontrolled from April 1, 2002. At that time, the marketing of petroleum products is slated to be opened up to private players. As per the current indications, this schedule is likely to be maintained. For us in BPCL this presents an opportunity.
 
During the last few years, BPCL has taken a number of steps to enhance the value we offer to the customer. The organisation was redesigned and six strategic business units were formed in 1998. The revised structure is more flexible, more responsive to external changes and, most importantly completely focused on the customer. Staff have been adequately empowered to as to reduce the response time. BPCL is today a much more agile and customer focused organisation. 

People are our biggest strength-each of them is now attuned to think of ways and means of better understanding customer needs and fulfilling them in the most cost effective manner. BPCL is well on the path to becoming a learning organisation where people learn faster than current and potential competition. Our vision is to make BPCL a great place to work where there is innate trust between people, where each employee is proud of his/her job, and where there is a strong sense of camaraderie amongst colleagues. We work consciously towards achieving this vision. In a survey conducted by  Hewitt Associates for Business. Today to identify the best employers, BPCL was ranked among the top ten employers in India, along with Infosys, Hewlett Packard, Procter & Gamble, ICICI, Hughes, LG, HLL, Compaq and Asian Paints. 

As a step towards nurturing creativity and innovation, an 'Ideas 2000' contest was organised. The response was whelming. An external jury adjudged entries and rewards were given for the best ideas that had been implemented. The contest is proposed to be conducted on an annual basis. In the National Petroleum Management Programme awards on excellence in creativity and Innovation, BPCL employees bagged all the three awards in the individual category. Our staff also got four certificates of recognition in the team category. 

As a part of the restructuring plan initiated during 1998, the need was felt for a strong IT backbone for driving superior business results. An Enterprise wide Resource Planning solution - SAP R/3, is being implemented as the backbone for most of the business processes. The availability of information from a centralised data repository is a powerful enabler for many business activities. This will considerably, enhance the service to the customer. BPCL's implementation has been a massive one especially in terms of the magnitude and geographical spread. Currently, more than 2400 users across 169 locations are using the system. Implementation would be completed by November 2001 at all company-operated locations. SAP implementation is resulting in reduction of back-end jobs and thereby providing an opportunity to release resources for frontline jobs. 

Ensuring that customers get pure quality and the correct quantity of fuels at our retail outlets has been a prime concern and we are passionately committed to making this a reality. As one of the major initiatives in this direction, BPCL has just launched an "Enhanced Fuel Proposition" (EFP) programme - a nationwide effort at dispensing pure quality of fuel in the correct quantity, and at the same time, delivering courteous, fast and efficient service. The retail outlets certified under this programme display the 'Pure for Sure' sign and BPCL guarantees that the correct quality and quantity is dispensed there. In order to be able to do so, strict quality control and tracking measures are in place. 100% adherence to quality control is being ensured at every point from the depot to the customers' fuel tanks. Special locks have been provided in tank lorries and comprehensive sealing has been undertaken of the dispensing units. Before certification, the retail outlets are subjected to stringent certification process tests to ensure that all parameters of the programme are complied with. Mystery audits and extensive inspections are carried out at these retail outlets to ensure that they continue to comply with the requirements of the EFP programme. The proposition has been rolled out at 98 retail outlets across Mumbai, Delhi, Kolkata, Bangalore and Chennai. This initiative is another pioneering effort from BPCL. Our vision is to make BPCL retail outlets synonymous with good quality fuel and courteous service. On behalf of the retail team, I invite you to try the 'Pure for Sure' outlets, and experience for yourself the quality and the service offered.

In an effort to build a direct relationship with retail customers, BPCL had introduced the Petro Bonus programme last year. With more than 350,000 Petrocard members, Petro bonus is the largest customer loyalty programme in India. We expect to enroll another 500000 members during 2001-02. The fact that members see value in the programme is reflected in the high usage. Nearly 30,000 transactions take place everyday, valuing at Rs.13 million. Petrocard was also voted as the 'Product of the Year' by the Smartcard Forum of India. 

In order to cater to the distinct needs of truck fleet owners and truck drivers, BPCL has chalked out an ambitious highway strategy. A chain of outlets with special facilities to cater to the highway segment is being set up on highways along the Golden Quadrangle. These outlets, which will also carry the 'Pure for Sure' guarantee offer fleet owners added facilities like vehicle tracking, communication services centralized payment systems and emergency assistance. BPCL is also offering reasonably priced hygienic food, visible parking, basic restrooms and other facilities at many of these sites. Many of these outlets are One Stop Truck Shops (OSTSs) which are company controlled. Twenty such OSTSs have so far been commissioned and BPCL plans to take this number to fifty by March 2002.

BPCL has recently launched 'Smart Fleet,' another loyalty card targeted at fleet owners and corporate customers. This programme, which is co-branded with Tata Finance, has been rolled out at select retail outlets. The objective is to offer all possible conveniences for fleet management like tracking of vehicles, flexible payment options, rewards, messaging service and options for MIS reports. The response to the programme has been good with over 12,000 vehicles already enrolled. We expect that 100,000 vehicles will have enrolled by April, 2002. 

Similar initiatives are also taking place in our other business. The B2B initiative of the Industrial and commercial business continues to generate a very positive response from customers and over 2,800 customers  access the site,  generating  business to the tune  of nearly Rs. 80  million per day. www.e-bharatgas.com our website for booking of LPG cylinders launched at Hyderabad. Chennai and Kolkata has received a very good response and we plan to launch it in Mumbai and Delhi. BPCL proposes to do a pilot on 5 Kg. LPG cylinders shortly. These cylinders will offer greater convenience to customers in rural and hilly areas, and also help in conserving them environment.' Innovative marketing initiatives have been launched by the lubricants business, like home delivery of lubricants, joint campaigns with manufacturers like Maruti, LML, Mico, etc. Through all these initiatives, BPCL is slowly earning a brand preference in the customer's mind.

Though our focus certainly continues to be on fuels, we believe that in the years to come, the non-fuel sector offers promising opportunities. Among the other non-fuel initiatives being explored, BPCL has recently set up branded convenience centres called 'In & Out' stores, aimed at facilitating shopping and completing multiple errands at conveniently located outlets. 'In & Out' stores offer 14 key product categories and services under one roof covering ATMs, photo shops, music, fast food, greeting cards, courier services, drop box for credit card/mobile phone payments, movies/entertainment ticketing etc. Strategic alliances have been entered into with leading brands in each category. These self-service stores have been launched in 34 locations in Chennai, Mumbai and Delhi. Eventually this concept would be expanded to 300 locations across 23 cities. The response has been good. 

In March, 2001, BPCL acquired Government of India's Share holding in Kochi refineries Limited (KRL). BPCL also acquired IBP's stake in Numaligarh Refinery Limited (NRL). With these acquisitions, the two companies have become subsidiaries of BPCL. The acquisition of a majority stake in KRL and NRL is vital for BPCL as it makes additional refining capacity available to us. The acquisition is also beneficial for KRL and NRL. There are synergies which can be achieved to enhance long term shareholder value of all the three companies. Joint negotiation for crude procurement, for instance, could lower the costs. To realise the full potential of the synergies it is essential that staff from all the three companies collaborate. Towards this end, a two-day workshop was conducted in July, 2001 to build a common purpose, in which top management of all the three companies participated. At the end of the workshop, the common purpose developed was 'Ours is a great place to work and we learn together to make a difference in people's lives through sustained excellence in performance and customer satisfaction'. An action plan to realise the synergies has been developed. In recognition of our contribution in the area of rural development, the FICCI Award for Rural Development for the year 1999-2000, was awarded to BPCL. With all the initiatives taking place, BPCL is optimistic about going into deregulation.