Petrol Pump Franchise Business Overview
By Vishnu Sultania, Avinash Singh
Introduction
With the country’s growing vehicular population and constant demand for fuel, the establishment of a petrol pump is considered a profitable venture. However, it requires a moderate investment, thorough planning, and adherence to various regulations. An overview of the steps, petrol pump opening cost, and criteria for establishing a successful petrol pump business is provided in this document.
Market Overview
The availability of quality petrol is crucial for the smooth functioning of industries, businesses, and daily commutes. As of October 1, 2024, a total of 91273 Petrol Pumps are in India, which is an 5.88% increase from 2023. Several leading Oil Marketing Companies (OMC) are Indian Oil Corp Ltd (IOCL), Bharat Petroleum Corp Ltd (BPCL), Hindustan Petroleum Corp Ltd (HPCL), Reliance Industries Ltd (RIL), Nayara Energy Limited (formerly Essar Oil).
Petrol Pump Dealership Features / Process
To understand the requirements for starting a petrol pump business, including features, processes, and eligibility criteria, insights have been gathered from the policies of public sector OMCs like IOCL and private companies like Nayara Energy.
Types: Based on location, Retail outlet (RO) can be Regular or Rural. Regular outlets located at Highways & Urban/Semi-Urban areas (within Municipal limits of town) while Rural RO located in rural areas but not on highways and outside municipal limits of a town.
Site Identification: The Oil Marketing Company (OMC) determines the location of the petrol pump, categorizing sites based on land status and facilities as follows:
| S No | Type of Site | Status of Land & Facilities |
| 1 | CFS Sites (Locations under Corpus Fund Scheme) (for SC/ST – Loan Scheme) | The offered land for outlet to be taken on purchased or lease-purchase and fully developed as the corporation owned site. |
| 2 | “A”/ “CC” sites (Other Corporation Owned Sites) | The offered land to be taken on purchased or lease and fully developed as the corporation owned site |
| 3 | Company Leased Site | The offered land along with superstructure need to be developed by the dealer, and it will be taken on lease by OMC. |
| 4 | “B”, “DC” sites (Dealer Owned sites) | The offered land and the superstructure must be developed by the dealer. Petrol & Diesel pump, tank, automation, signage, etc. will be provided by OMC. |
Eligibility criteria
i. Citizenship: Indian citizenship
ii. Residential status: Must be resident of India (as per Income tax rules)
iii. Educational Qualification: Passed 10th Minimum
iv. Land: minimum 800 sq. mts. in town area or 1200 sq. mts. on highways either owned or leased for a period of 30 years, road touching, levelled and developed.
v. Finance: Non-individual must be profitable for last three years.
Retail Outlet Management
Owner himself should manage.
Statutory Approvals / Licences
Generally following approvals will be needed:
NA (Non- Agricultural) Conversion CCOE (Explosives Department) initial approval District Collector NOC, Police commissioner NOC, approval from PWD, Electricity board, Gram panchayat etc. depending on the requirement by the competent authority.
Final CCOE License NH (National Highway) – access road permission.
If applicable Forest NOC – In case of forest land Retail Selling licence wherever applicable Weights and Measures stamping.
Selection Process: Application Submission, screening, interview, and finally execution of
dealership agreement.
Capital Requirements for Setting Up a Petrol Pump Franchisee (As listed below)
| Cost Component | Estimated Cost (₹) |
| Application Fee | 10,000 – 5 Lakhs |
| Land Lease/Purchase | 50 Lakhs – 1 Crore |
| Infrastructure Development | 70 Lakhs – 1 crore |
| Petrol Pump Dealership Cost | 10 Lakhs – 15 Lakhs |
| Working Capital | 20 Lakhs – 30 Lakhs |
Returns on Investment
Payout model offered by Oil Marketing Companies (OMCs) is influenced by type of site. These can be following:
“A” Site: Land owned/leased by dealer and developed by OMC. Outlet is managed by dealer and gets lesser commission (generally 20 to 30 paisa lower) than Dealer-owned-Dealer-Operated site (DoDo) or “B” Site.
“B” Site: Owned (or leased), Developed and operated by the dealer. Margin which is difference of wholesale rate and retail rate of fuel (also known as commission) on sale of petrol/fuel is paid earned by dealer usually around Rs. 2-3 /Litre.
Risk: Evaporation, theft.
For example, Nayara Energy, one of the largest private players, offers a mutually agreed lease rental for land leased by the dealer for petrol pump, a 5% annual return on infrastructure development investment made by the dealer, and competitive margins or commissions on sales. (see below diagram)
Oil Market Outlook
The International Energy Agency (IEA) projects that global oil demand will gradually slow down between 2023 and 2029 and start declining after that, driven by the rise of electric vehicles (EVs), reduced oil use for electricity generation, and stagnating demand in China. While overall demand is expected to grow by about 3.3% by 2029, annual increases will slow significantly. While global oil demand is expected to decline, particularly in advanced economies, production capacity is expanding to meet anticipated future needs in emerging markets like India.
As per the IEA report, it is expected that India will lead in oil demand growth in 2024, with a projected increase 200,000 barrels per day (kb/d), surpassing China for the first time. Additionally, oil secretary Pankaj Jain said that India wants the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, to raise their oil output due to rising fuel demand in the country, according to a report by Reuters.
Despite China’s downturn, emerging markets like Brazil and India have maintained robust oil demand. This presents profitable outlook for the petrol pump business in India, despite the falling consumption in advanced economies.
Conclusion
In summary, the establishment of a petrol pump franchise business offers a promising opportunity amid India’s growing fuel demand. While careful planning is essential, the potential for substantial returns makes this a compelling opportunity. By following the necessary steps and partnering with reputable Oil Marketing Companies, entrepreneurs can effectively tap into this vital market, contributing to both their success and the nation’s energy needs.
ABOUT THE AUTHOR (S)
Vishnu Sultania is the Managing Director at AKMV Consultants, and a financial advisor to United Nations UNDP; Avinash Singh is a qualified Chartered Accountant and serving as a Finance Analyst at AKMV Consultants.
