Home delivery of petrol: Indian market not ready for it

Soon after the tweet by Petroleum Minister Devendra Pradhan that his ministry is exploring ways of delivering petrol and diesel to homes, safety-related questions were raised. There were even allegations that the move may be aimed at supporting some private app-based companies.

The stated objectives of home delivery of fuel are to reduce lines at the service stations to save time to motorists and promote cashless transactions. If we analyse the ground realities, it is doubtful that we are ready for mobile petrol stations (MPS). For promoting cashless transactions, there are better strategies.

Since very few details are given, it is difficult to trace the origin for the idea of home delivery of fuel. Is it possible that India might have been influenced by such startups in California’s Silicon Valley which started in 2015? In several cities of the US where home delivery has started, fire marshals in charge of enforcing safety standards are not sure if these MPSs are complying with the existing regulations.

But given the business-friendly environment in the US, many cities are now trying to develop regulations to control these start ups. Already, there are startups like FILLD, WeFuel, GasNinja, Yoshi, Purple, and Booster Fuels  operating in several regions of the US even in the absence of not knowing if they can legally operate or not.

Just like Amazon succeeded in disrupting brick and mortar-based book sales, these startups hope to make petrol stations obsolete. Only time will tell if they succeed. These startups give the example of Uber to show how they may finally succeed despite not having a proper regulatory framework.

Unlike in the case of India, the reason these MPSs have been floated is not for reducing lines at service stations. It is driven by the objective of saving time of filling up at service stations for those who value saving as little as “10-15 minutes” and are prepared to pay Rs 350 to Rs 450 for the service. Some MPSs do not charge any additional fees. Convenience of getting petrol on demand without having to make additional trips is another reason.

In the US, a service station in some congested cities may cost as much as $2.5 million and mobile service stations on wheels may cost just $50,000. Startups hope that such a large difference may give them the needed profit margin to compete. Some of these app-based MPSs are offering car wash, changing tyres and windshield wipers etc, to earn additional revenue. Some even claim they are already profitable.

However, India’s conditions are very different. What may work in the US may not work for India. Should there be an accident, liabilities of fuel companies may run into millions because of strict enforcement of laws. It is worth recalling the billions of dollars of damages paid by BP (it is still paying the fines) because of its offshore accident in the Gulf of Mexico. Because of huge potential damages, these startups will take every safety precaution. Can we expect such safety measures even by our public sector oil companies in India? 

In India also there are safety standards specified in the Petroleum Act of 2002. But do we have the political will to enforce them? Given the abysmal governance and ethical standards, how successful will we be in India? In congested urban areas, any potential accident involving MPSs can cause far more damage than a simple vehicular damage.  
In India, one of the reasons for long lines at gas stations is the need to meet the petrol demands of the two-wheelers in large numbers which is not the case in the US. On a per litre basis, two wheelers will take a lot more time than four wheelers since at one filling, two wheelers purchase of fuel is not more than 10% to 15% of what a four wheelers will need.

Tughlakian idea?
According to the Petroleum Ministry, there are about 60,000 fuel stations (95% owned by PSU marketing companies such as IOCL, BPCL and HPCL) meeting the fuel requirements of 35 million customers daily as against 40 million in the US. In India, there are about 214 million vehicles served by 60,000 stations versus 1,50,000 stations in the US serving 264 million vehicles. These statistics show that one of the reasons for long queues at Indian petrol stations is the lesser number of the stations. For auto LPG, queues are even longer.  But the solution may not be MPSs as discussed below.  

The ministry could have thought of having more number of stations if land is available, or having more number of service bays or better management of queues or some such innovative ways of faster filling of fuel using the existing infrastructure. Has the ministry considered other practical and safer alternatives rather than home delivery?

Even with all the checks at the service stations today, it is difficult to prevent adulteration of petrol and diesel today. In the case of MPSs, it will be even more difficult. Drivers of the MPSs with minimum salary are likely to be tempted to adulterate fuel and also pilfer fuel. Thus, the quality and quantity control of fuel dispensed through home delivery will be a big issue.

Since the productivity of supplying through MPSs will be poor, customers may not be willing to pay for higher cost despite the convenience of not having to wait in line. In addition, there are quality and quantity issues. In all probability, the demand for home delivery may be limited.

If a proper cost-benefit analysis of home delivery is done, it is likely to show that the home delivery of petrol for India’s conditions may be more a Tughlakian idea rather than a radical one to reduce long queues. Prudently, the Petroleum Ministry has decided to experiment on a trial basis in Puducherry before implementing it at the national level.