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NEW DELHI (Reuters) - Global oil major BP will set up 3,500 fuel stations in India, becoming the second overseas firm drawn to the rising demand for gasoil and gasoline in the world's fastest growing major economy.
India is replacing China as the driver of global oil demand growth and there is enormous scope for fuel demand to increase over the next decade as the Indian economy expands and a rising middle class obtain access to motor vehicles.
"We will shortly issue them (BP) a letter permitting them to set up 3,500 retail outlets," an oil ministry spokesman told Reuters on Thursday.
Another oil ministry official said the letter granting BP permission to sell fuels could be issued by Friday.
India's oil consumption is seen rising by 6 million barrels per day (bpd) to about 10 million bpd by 2040, according to the International Energy Agency.
"BP sees a strong future for transportation fuels in India. We are keen to be involved in this market and contribute to its development," a BP India spokeswoman said in an email reply.
She confirmed that BP had sought the Indian government's approval to sell petrol and diesel.
India's fuel demand rose by 11.6 percent in 2015/16, its highest rate in at least 16 years.
European oil major RoyalDutch Shell has 82 fuel stations in India, a retail market dominated by state refiners that own 93 percent of the 56,190 outlets in the country.
Oil minister Dharmendra Pradhan in June said global oil majors including Saudi Aramco and Total plan to tap the retail fuel market in India.
Indian fuel markets could be a lucrative prize for BP, which reported a 45 percent drop in second-quarter earnings. It has also received an Indian licence for jet fuel sales.
It is not clear from where BP will source fuels for local sales. India's pricing formula gives higher profits to retailers with refining plants or domestic supply sources.
"BP already has a tie up with Reliance on the gas side so there is a possibility they may strengthen this relationship further to the downstream side of the business," said Tushar Tarun Bansal, director at Singapore based consultancy Ivy Global.
BP in 2011 acquired a 30 percent stake from Reliance Industries in some exploration blocks and formed a gas sourcing and marketing tie-up with the Indian conglomerate.
"Any refining or product sale tie-up with BP will suit Reliance which recently decided to exit from the African market, leaving it to explore new geographies and clients for its fuel," Bansal said.
Reliance, owner of the world's biggest refining complex, currently has a small share in the local fuel market.
Bansal said BP's entry into retail fuel sales may not immediately dent state refiners' market share as rising Indian fuel demand has the potential to absorb a new player.
"Moreover, they cannot open 3,500 retail stations overnight".
Reporting by Nidhi Verma; Editing by Elaine Hardcastle