The lube industry was nationalized in 1974 and foreign brands were banned, but three private brands – Castrol, Gulf and Veedol – were allowed to continue with import restrictions and limited base oil quotas. Lubricants were liberalized fully in 1993, but the business has been stagnating, said Rao, because of leaps in lube technology.

Rao estimated that the leading players today are Indian Oil, with 27 percent of Indias lube market; BP-Castrol, 18 percent; Hindustan Petroleum, 17 percent; Bharat Petroleum, 10 percent; Gulf Oil, 5 percent; Tidewater, 4 percent; Shell, 4 percent. All others share the remaining 15 percent.

India today consumes about 900,000 tons of lubricants per year, excluding process oils. Lube oil sales declined 18 percent from 2000 to 2001, dropped another 7 percent in 2002, and dipped 4 percent last year. But Rao projects 3 percent sales growth this year, and 4 percent in 2005.

Driving that rise in lube sales is anticipated growth in Indias vehicle population. The total vehicle population was estimated to be 44 million in 2000; a total of 59 million is projected for 2005; 72 million in 2010; and 87 million in 2015.

Automotive lubricants account for about 65 percent of Indias demand, while industrial lubricants account for about 35 percent. Rao noted that others have estimated automotive lubes share even higher, at 70 to 75 percent of total demand.

Distribution of lubricants in India, said Rao, is a logistics nightmare. Each of Indias 32 states has a different tax structure, requiring storage and billing facilities in each state. Some states demand entry permits for lubricants, and lube licenses are required in some states. Products can take more than three weeks by road to be delivered, and trucks can go through at least 21 check points making a delivery.

Overloading of trucks by truck drivers is a major problem, Rao continued, resulting both in leakage and over-strengthening of bottles. Returning damaged or rejected material is a major problem, he said, because of government taxes.

India is a big credit market, Rao warned, and collections are a problem. Given the distribution challenges, most sales are done through a distributor-to-dealer-to-retailer route.

Turning to base oils, Rao noted that India is a net importer; only three refineries make base oil in India. One has recently upgraded to make Group II base oils, and another is being upgraded. A new refinery is planned in Mumbai. Around 400,000 tons of base oil are imported into India annually. The local oil quality is OK for most of the grades required by the market, said Rao, but most of the multinational companies import [base oils] for the up-market lubricants.

Iranian base oils are picking up now, even though the viscosity index is low, Rao said, and a lot of CIS base oils are coming in now through Iran. Other supplies come from Singapore, Europe and the United States.

The market expects a significant shift to Group II [base oils] when CG-4 and SL level oils pick up, said Rao. Higher quality Group II oils are currently imported from Korea and Singapore.

Anybody with money can import, Rao noted. High-seas sales are common to avoid local sales taxes. Bonded tanks are available in all the major Indian ports, but bonding is not allowed in a companys own factories.

Looking to the future, Rao says emissions rules in India will move rapidly to Euro-type regulations. Base oils for automotive engine oils will move to Group II, but Group I will also be in greater demand, and Group I local availability will be shorter than required.

Oil specs will rise towards SL and CH/CI-4, and multigrades will be more prevalent. OEM-lube oil company tie-ups will increase in the short run and eventually fade off, Rao continued, and a shakeout will happen in market shares. While privatization will introduce uncertainty and opportunities, it could make sense, Rao concluded, to have an investment in Indian base oil refining.