India's Reliance is teaming up with BP in a move that could send the country's state-owned fuel giants into a tailspin

• Reliance Industries - BP to launch 2,000 fuel retail outlets across India over the next three years.
  
• The move will set off alarm bells for India’s state-owned fuel giants, given their already-declining share of the fuel retail market.
  
• As private companies gain a larger share of the fuel retail market in urban areas and highways, public-sector retailers will be forced to redirect their focus to rural and semi-urban areas.
  

Reliance Industries, India’s largest company by market capitalisation, and global oil and gas supermajor BP are planning to launch 2,000 fuel retail outlets across India by 202, according to media reports citing company insiders. A formal announcement is expected in the next few months after the specifics of the joint venture are hammered out.

The news is likely to send India’s state-owned fuel giants into a tailspin. Their share of the rapidly-growing market has already been on a decline owing to the deregulation of fuel prices, which allows private companies to compete with state-owned ones.

The Indian government has made a conscious decision to encourage the entry of private and foreign fuel retailers in recent years, in a bid to promote competition and attract foreign dollars.

To that end, the government solicited a joint investment by Reliance and BP in the fuel retailing sector in June 2017. The move followed the two companies’ decision to develop a series of deepwater gas fields off India’s eastern coast. In October 2016, BP also secured a license to open 3,500 fuel retail outlets across India.

The government’s open-market agenda is slowly paying off. Private fuel retailers are slated to hold as much as 15% of the market in 2021 compared to 1% in 2010, according to a report by CRISIL, a ratings agency. As private companies gain a larger share of the fuel retail market in urban areas and highways, public-sector retailers will be forced to leverage their distribution network and focus on rural and semi-urban areas.

Reliance likely sees a joint venture with BP as a way of cementing its comeback in the sector. After making large strides in the fuel retailing sector in the early to mid-2000s, the Mukesh Ambani-owned conglomerate was forced to bow out after being unable to match the subsidised prices of state-backed fuel retailers like Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum Corp.

The company’s re-entry comes on the heels of the deregulation of petrol prices in 2010. It has since grown its market share of petrol retail from less than 1% to nearly 7%. But to be sure, state-run retailers still hold 90% of the market.

BP and Reliance, along with other private retailers, will continue to be wary of government intervention with respect to prices, especially given their significant capital costs. Following weeks of pressure over high prices, for instance, India’s Finance Ministry announced a ₹2.50 per litre reduction in the prices of petrol and diesel on Oct. 4.

BP’s chief executive, Robert Dudley, was quick to voice his disapproval of the move, saying that it did not bode well for the sector. He did, however, maintain that BP’s play in India was one for the long term, adding that BP and Reliance aimed to meet 10% of India’s fuel needs by 2022.