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Thu, 31 July 2014 08:15:58
Sri Lankan experience scares Indian Oil off foreign retail business: report
07 Aug, 2007 16:15:21
August 07, 2007 (LBO) – Indian Oil Corporation (IOC) may put off overseas expansion following its experience in Sri Lanka where it lost money after being forced to under-price fuel and government subsidies got delayed, Indian media reported.
State-owned IOC is delaying an entry to Malaysia and Indonesia where oil subsidies are also in place, fearing a repeat of its Sri Lanka experience while US and European markets also had limited potential, India's Business Standard newspaper said.

"Our experience in Sri Lanka has forced us to reconsider the plans of starting retail operations in south-east Asia as auto fuels are subsidised in these countries," the paper quoted a senior IOC official as saying.

"We do not want to get caught in the subsidy web again."

The paper said IOC is "facing troubles in Sri Lanka", one of the two overseas markets where it sells fuel through its fully owned subsidiary, Lanka IOC. The other country is Mauritius.

Lanka IOC has a third of the retail fuel market in Sri Lanka, and the state-owned Ceylon Petroleum has the balance.

Lanka IOC made a loss of 636 million rupees for the full year to March 2007 with revenues at 32.7 billion rupees.

It had revenues of 37.4 billion in 2006 and made a loss of 1,717 million.

LIOC posted net profits of 874 million rupees in the 3-months to March 2007 (344.7 million rupees in 2006) despite sales falling from 10 billion rupees to 9 billion, according to results filed with the Colombo Stock Exchange.

Sri Lanka has lifted price controls on fuel last month and at least on paper, the country now operates a monthly fuel adjustment formula.

The IOC official, however, said that the plans to set up retail outlets in south-east Asia were not abandoned.

The company will wait until the subsidy regime in Indonesia and Malaysia is lifted before starting outlets there, Business Standard said.

IOC plans to enter the south-east Asian markets by selling lubricants, which it says will begin in a year.

"That will also help us build some kind of a brand image," the official said.

He said US and European markets were too mature and African expansion was also on hold.

"The big players are already there. Moreover, the market is very limited," the official said.

He said these investments could be justified if IOC was looking at a significant international retail presence, but its priority continues to be the domestic Indian market with only the surplus being exported.

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