CASCA Consulting, L.L.C.

1. CASCA Consulting, L.L.C. Global Future of Petroleum Retail Marketing: Implications for Asia and Specifically India Presentation at the DRMP Conference, New Delhi, India, April 27, 2002 Franz B. Ehrhardt, CASCA Consulting, L.L.C.

2. Contents • Global Retail Markets • State of Retail Marketing in Select Countries • Key Influencing Factors that Drive Change • Select Key Success Factors • Retail Market Trend Prediction Techniques • What to Expect Next in Global Trends • Implications in Asia, Using India as Example CASCA Consulting L.L.C. - Scope of Services

3. UK Thailand Germany Canada USA Japan Australia Malaysia Turkey Korea China India Brazil Vietnam Mexico Indonesia Market Control FREE MARKET Emerging Markets (Agriculture) - Simplistic PARTLY CONTROLLED Medium Growth High Growth Low Growth FULL CONTROL MONOPOLY Mature / Saturated Markets (Industrialization) - Sophisticated CASCA Consulting L.L.C. - Scope of Services

4. Efficiency / Productivity Efficiency / Productivity Facility Standards Facility Standards Customer Focus Customer Focus Non-Fuel Income 0 1 2 3 4 5 6 High Low Investment Investment Market Comparisons Variations in Focus and Emphasis Low High Non-Fuel Income Free Market Controlled Market CASCA Consulting L.L.C. - Scope of Services

5. Market Control UK Thailand Germany Emerging Markets (Agriculture) - Simplistic FREE MARKET Canada USA Japan Australia Malaysia Turkey PARTLY CONTROLLED Korea China India Brazil Medium Growth High Growth Low Growth FULL CONTROL MONOPOLY Vietnam Mexico Indonesia Mature / Saturated Markets (Industrialization) - Sophisticated CASCA Consulting L.L.C. - Scope of Services

6. Market Conditions: Discussion Examples • Technological Leader • Scandinavian countries, some USA • Sophisticated & Profitable • Belgium, Netherlands, UAE, Singapore • Transitioning / Battlefield • Japan, Thailand, Taiwan • Sophisticated & Marginal • USA, UK, France, Germany, Australia • Transitioning / Moderate • Korea, Malaysia, Philippines, Pakistan, Argentina, Chile • Emerging / Still Controlled • Indonesia, Mexico, China, Vietnam CASCA Consulting L.L.C. - Scope of Services

7. Market Status: Discussion Examples • Single Monopoly • Indonesia, Mexico, Myanmar • Multi-Company Monopoly • India*, Vietnam, Korea • Legally Open, but Actually Not • Malaysia • Fully Open with Legal Restrictions • USA, Australia • Fully Open without Restrictions • Germany, Sweden, UK • Recently Opened • Eastern Europe, Japan, Taiwan • Transitioning • Russia, Philippines • Undefined • China CASCA Consulting L.L.C. - Scope of Services

8. Benefits and Concerns/Issues: Controlled Market Examples BENEFITS (Oil company) • Low capital requirements • Low operation cost due to high unit volumes • No promotion & advertising expenses • Secure channel for predictable product disposition • Usually protected earnings • CONCERNS (Oil company) • Gap to world class standards • Creates outdated facilities • Low preparedness level for decontrol • Huge investments required for decontrol • Compliance with extensive bureaucracy • CONCERNS (Motorist) • Outdated facilities • Low appearance appeal of stations • Very few support services • Very few new stations • Long commute to find fuel • Service standards usually low • Frequent waiting times at station • BENEFITS (Motorist) • Very limited price swings • Possible price subsidization CASCA Consulting L.L.C. - Scope of Services

9. Benefits and Concerns/Issues:Free Market Examples BENEFITS (Oil company) • Unrestricted access to the markets • Flexibility for optimum asset utilization • Minimal bureaucracy involvement • Control of earnings destiny • CONCERNS (Oil company) • Constant need to maintain a strong competitive position • Adequate reinvestment funds required • BENEFITS (Motorist) • Wide range of product and service choices • Catering to highest standard of customer satisfaction • Adequate number of convenient locations • Competitive prices • CONCERNS (Motorist) • Higher incident of price changes and ranges CASCA Consulting L.L.C. - Scope of Services

10. Margin Level Experience:Free Market Margins per Unit High Low Small X Netherlands X New Zealand Australia X Market Size Germany X X Thailand X Japan X USA Large CASCA Consulting L.L.C. - Scope of Services

11. Rack-to-Retail Margins Investment Per Station Break-Even Expenses Number of Stations Retail Volume Per Station Non-Fuel Income Global Retail Trends: Free Markets Time Hi Hi Lo Lo CASCA Consulting L.L.C. - Scope of Services

12. Major Rebuilding, Upgrading Program Very Large Stations Merger/JV of Large Retail Operations Price Wars Larger Size Full Service and Repair Bay C-Stores Add Motor Fuel C-Products at Fuel Stations Super/Hyper Markets Add Fuel Expansion of Independents Self Service Repair Bays Disappear Just Gas Prive/Volume Control No Investments Every Corner Every State Car Service Specialist Full C-Stores at Stations Market Transition EXAMPLE: USA Petroleum Retailing Facilities and Services CASCA Consulting L.L.C. - Scope of Services

13. Market Transition Agriculture Unattended Full Service Self Service Actual Other Income Industrialization New Manpower Solutions Required Competition from Industry High Turnover Quality Down Customer Dissatisfaction Obligation to Create Jobs Low Labor Turnover High Unemployment Full Industrialization Manpower Cost Very High Prohibitive for Entry Level CASCA Consulting L.L.C. - Scope of Services

14. Retail Unit Margin Pressure Factors (Not by sequence or significance) High Aggressive (Independent) Competitors (Price) C-Stores with Gasoline Supermarkets with Fuel CP Income Inflation Cost Reduction Margins Over-Building Self Service Co-Branding Mergers Rationalization Joint Ventures/Mergers Low CASCA Consulting L.L.C. - Scope of Services

15. Global Trend Line Competitive Positioning Lowest Cost Break - Even Thrust High Typical Mature & Sophisticated Market Typical Emerging Market Cost Margin per Unit Low Low Monthly Volume / Revenue High CASCA Consulting L.L.C. - Scope of Services

16. High Vulnerability Low Vulnerability Market Price Competitive Positioning Lowest Cost Break - Even Thrust High Company A Loss Cost Margin per Unit Company B Company C Marginal Profitable • Company D = Trendsetter • e.g.: Supermarkets Low Low High Monthly Volume / Revenue CASCA Consulting L.L.C. - Scope of Services

17. Company B x x Company A Company C x x • Company D = Trendsetter • e.g.: Supermarkets Competitive Positioning Lowest Cost Break - Even Thrust High High Vulnerability Low Vulnerability Convenience Products Services Cost Margin per Unit Operating Cost Increases New Investment Low Monthly Volume / Revenue Low High CASCA Consulting L.L.C. - Scope of Services

18. Global Trend Competitive Positioning Lowest Cost Break - Even Thrust High High Vulnerability Low Vulnerability Company B Company A Cost Margin per Unit Company C • Company D = Trendsetter • e.g.: Supermarkets Low Monthly Volume / Revenue Low High CASCA Consulting L.L.C. - Scope of Services

19. Option 3 1000 Units of Currency (non-) Option 2 Option 1 Combination Options fora Fixed Income Level Competitive Vulnerability Positioning High Margin (Price) per Unit Low Volume / Revenue High Low CASCA Consulting L.L.C. - Scope of Services

20. High Vulnerability General Global Trend Combination Options fora Fixed Income Level Competitive Vulnerability Positioning High 1000 Units of Currency Margin (Price) per Unit Medium Vulnerability Low Vulnerability Low Volume / Revenue High Low CASCA Consulting L.L.C. - Scope of Services

21. Time Maturity Segment Opportunity Window Pioneer Risk Business DevelopmentTrendline & Life Cycle 100 Saturation Earnings Reward Innovate Market Penetration Enter - 0 - CASCA Consulting L.L.C. - Scope of Services

22. Time Convenience Stores at Stations:Life Cycle - Example USA 100 1990 - 1995 Saturation Earnings Reward Maturity Segment 2000 Innovate Market Penetration Enter 1985 - 1990 Opportunity Window Pioneer Risk - 0 - 1980 - 1985 CASCA Consulting L.L.C. - Scope of Services

23. Time High High Overbuilding Margins Station Population Rationalization Low Low CASCA Consulting L.L.C. - Scope of Services

24. Time High High 4-6 Points over C.O.C. Overbuilding 2-3 Points over C.O.C. Margins ROAE Station Population Cost of Capital Rationalization Loss Low Low CASCA Consulting L.L.C. - Scope of Services

25. Global Trend Predictionin Free Markets • Further rationalization and decline in numbers of retail facilities • Size and investment in individual facilities will continue to increase significantly • Fierce competition will force operating cost much lower; trendsetter will target a zero expense margin for fuels • Mass merchandisers (e.g.: super markets) are there to stay in the fuels business and will expand while heavily squeezing retail margins • The majority of retail earnings will come from non-fuel activities, especially from convenience products and fast food items • Macro and micro mergers of retail operations will result in lower break-even costs and heavily pressure those that do not act in response CASCA Consulting L.L.C. - Scope of Services

26. Global Trend Predictionin Free Markets (cont’d) • Many long-term traditional fuels retailers will sell their networks • Actual and quasi-unattended fuels operation will expand significantly • With approaching C-store saturation, oil companies and traditional C-store operators will engage in fierce price battles • Unleaded low aromatics gasoline and ultra-low sulfur diesel will be the norm • Diesel will continue to play a strong, even growing role alongside gasoline; automotive LPG will continue at a low but steady level; automotive natural gas is likely to expand significantly; methanol, ethanol, hydrogen; electricity, etc., for the time being will find rather limited applications when not heavily subsidized • Motor fuel availability will remain in a surplus position CASCA Consulting L.L.C. - Scope of Services

27. Global Trend Predictionin Free Markets (cont’d) • Environmental soil, water, and air protection standards will be further tightened. Full vapor recovery (Stage I and II) will be required. • Stricter safety standards will be legislated and enforced • Smart credit and debit cards will dominate payment transactions • Computer-based information and communication technology and the Internet will have a profound impact on fuel and convenience product marketing • Lube change intervals will be constantly extended • Specialized car services will continue to expand outside stations while retail facility-connected lubrication and repair service will give way to convenience product and other non-automotive services CASCA Consulting L.L.C. - Scope of Services

28. Implication onAsia and India • The remaining Asian and Sub-Continent retail markets could require another 5-7 years until full decontrol • Tremendous investments and training efforts will be required by national oil companies, their local partners, and foreign oil companies to elevate the respective networks to prevailing world standards • The listed global trends will, over time, impact India and the rest of Asia as well • Natural gas as automotive fuel will play a bigger role in India and the rest of Asia, then in other parts of the world • Local and multinational joint ventures will be a preferred approach to retailing • National oil companies will expand across borders CASCA Consulting L.L.C. - Scope of Services

29. Implication onAsia and India (cont’d) • Traditional bureaucratic structures and approaches of national oil companies, and other companies operating in controlled markets will have to dramatically change and greatly increase their efficiency • High unemployment in many countries will require the continuation of full retail service to ensure employment especially for of entry level labor • Convenience-stores at fuels stations will rapidly penetrate the markets • Oil companies and governments need to cooperate more effectively to eliminate product co-mingling, smuggling, and other manipulations • Traditional powers of bureaucracy personnel over approval processes and the linked exploitations, are not likely to ease significantly, even after “decontrol” CASCA Consulting L.L.C. - Scope of Services

30. Key Concerns andIssues for India Competition and Markets Structure • New and non-traditional markets entrants will start in the market with Global Best Practices standards creating a substantial gap to the present operators • Hypermarket and Mass-Merchandiser participation will be facilitated by the availability of adequate independent petroleum product supply, even alliance may occur • Market participants are likely to be traditional majors (IOC, HPC, BPC), international majors like BP, Shell, Exxon, Elf, as well as Indian and foreign non-majors , including hypermarkets, who will likely employ a maverick marketing style (Thailand model). • Operation standards to be elevated to world class CASCA Consulting L.L.C. - Scope of Services

31. Key Concerns andIssues for India(cont’d) Competition and Markets Structure • New modern distribution systems and facilities have to be developed to provide sufficient and reliable service at acceptable standards to major and remote rural areas. New markets entrants will leave this domain to the traditional Indian operators CASCA Consulting L.L.C. - Scope of Services

32. Concerns and Issuesfor India Investments • New entrants will develop prevailing world class facilities and they will focus on urban and key sub-urban locations • To close the gap in those markets and to become adequately competitive, traditional Indian marketers will have to rebuild or retrofit about 30% and completely replace 30-40% of existing stations requiring somewhere between 10,000 and 15,000 cr rs • Longer term competitive and economic pressures will force a consolidation of liquid petroleum product and automotive gases (LPG and CNG) in single facilities • The entry of new competitors will significantly elevate the cost (and value) for land for facilities CASCA Consulting L.L.C. - Scope of Services

33. Concerns and Issuesfor India (cont’d) Environment • Government regulations will require that the gap between existing standards and global standards will have to be reduced at an accelerated pace • Higher investments for environmental protection equipment and installations will be necessary CASCA Consulting L.L.C. - Scope of Services

34. Concerns and Issuesfor India (cont’d) Operating Culture and Value Changes • Dealer/Company relations will have to undergo a fundamental change from independent, disconnected, and somewhat confrontational to highly cooperative and mutually respected • Dealer selection has to be unrestricted and based exclusively on qualifications • Corporate and organizational structures have to be de-bureaucratized, flattened, streamlined, and effectively empowered • A fundamental shift to the new paradigm of “People Pleasing” has to take place CASCA Consulting L.L.C. - Scope of Services

35. Concerns and Issuesfor India (cont’d) Operating Culture and Value Changes • Extensive training and education programs are required for Indian retailers to be competitive in a free market • How will the required enormous repositioning be financed and where will qualified trainers and facilitators be found? • Corporations will have to introduce and foster a culture of competitiveness, productivity, and efficiency that is on par with global standards to keep their company viable • How to secure the support of Executive Management and where to find the experienced trainer and facilitators for this task? • Fundamental change in service quality will be part of the new culture CASCA Consulting L.L.C. - Scope of Services

36. Concerns and Issuesfor India (cont’d) Customer Expectations and Behavior Changes • A fundamental switch in customer expectation will initiate a fundamental change in the operating style of dealers and companies alike • Waiting lines will not be tolerated any longer, prompt service will be expected • Traditional customer loyalty will be replaced to loyalty to modern “Big, Nice, and New” operations that provide the highest standards of customer satisfaction • Effective and satisfying grievance procedures and processes will become essential • Operation standards to be elevated to world class CASCA Consulting L.L.C. - Scope of Services

37. 50 45 35 32 15 10 10 3 Urban/Subur. Major Rural Mini Rural Highway India - Likely Retail Station Scenario Shares expressed in % 50 40 30 20 10 0 Station Share Volume Share CASCA Consulting L.L.C. - Scope of Services

38. Retail Station Categories Four Major Categories of Stations • A) Urban & Suburban • Large facilities, 6-10 Multi-Product Dispenser, full-size canopy, • Large building for C-store and co-branding, lube & wash service • Tailored, separate motorcycle facilities • Leak-proof underground tanks and pipes, 50+ KL tanks, • Data transmission, remote control, credit/debit card acceptor • B) Major Rural • Medium size facilities, 2-4 MPDs, adequate canopy • Medium size building for C-store, lube & wash service • Tailored, separate motorcycle facilities • Leak-proof underground tanks and pipes, 50+ KL tanks, • Data transmission, remote control, credit/debit card acceptor CASCA Consulting L.L.C. - Scope of Services

39. Retail Station Categories(cont’d) • C) Mini Rural • Kiosk size facilities, standard electric or manual dispensers, • Limited convenience product line • Focus on integrated motor cycle facilities • Small above or underground tanks • Mostly traditional payment, range of data capture • D) Highway / Truck-Stops • With expansion of modern Highway infrastructure, emergence of state-of-the-art long-distance fueling & service facilities and truck-stops • E) Special Development: Hyper Market Stations • Global trends and availability of independent fuel supply will likely spawn (unattended) automated 6 - 8 MPD facilities in urban and key sub-urban areas CASCA Consulting L.L.C. - Scope of Services

40. Facility Replacement - Investment Patterns (At least 10,000 - 15,000 cr. Rs for India) 100% 80% 60% 40% 20% 0% Free Market Decontrol Gap % of Replacement Controlled Markets Years (12 -15) CASCA Consulting L.L.C. - Scope of Services