Cap on subsidised cooking gas cylinders reduces diversion, fuels demand

The imposition of a cap on subsidised cooking gas cylinders has resulted in an increase in auto LPG sales for state-owned oil marketing companies.

The demand from cars and three-wheelers for the eco-friendly fuel, whose popularity is, however, largely driven by the cost advantage it enjoys over petrol, rose by as much as 20 per cent in October over the 16,818 tonnes dispensed by the three companies in September. (At current levels, the price difference between auto gas and petrol is a little under Rs.20 per litre in Delhi).

In November, Indian Oil Corporation, Bharat Petroleum Corporation Ltd. and Hindustan Petroleum Corporation Ltd. sold a total of 20,151 tonnes making it two consecutive months of good growth in what otherwise was turning out to be a lacklustre fiscal for auto gas sales. Besides being the best so far in 2012-13, what made October sales important was that it came after a month when the auto LPG growth slipped into a negative zone. There was a decline of 1.8 per cent in September.

“With the capping of subsidised domestic LPG cylinders, there has been a turnaround in auto LPG growth numbers,” says N. Srikumar, Executive Director (Corporate Communication and Branding) of Indian Oil Corporation. A lot would depend on the growth trend continuing as the April-September sale, of 99,524 tonnes, is less than half of the annual sale since 2009-10.

The growth in domestic LPG in the last two months has come down drastically as diversion of the refills to non-cooking use such as in automobiles, commercial use has slowed down considerably, he adds. Diversion of domestic LPG cylinder — on which the companies say their under-recovery is Rs.520 (per refill) — is a menace and a safety hazard.

“At one time, domestic LPG was clocking double digit growth. Today, in many markets, it is registering lower single digit and even negative numbers in some markets. As an offshoot of this, the demand for auto gas has also picked up considerably in the last two months,” says Mr. Srikumar.

This despite auto LPG prices that move in line with international prices and are subject to revision every month increasing. In April this year, the price (per litre in Delhi) was Rs.49.72. From there it came down to Rs.45.62 in May and in July dipped to Rs.40.67. In September, the month when the cap on domestic LPG cylinders was introduced, the price was Rs.41.08. It was Rs.45.41 and Rs.45.87 in October and November, respectively.

While the upswing in auto LPG growth augurs well for both the consumer and the oil company, particularly the latter, as there are no under-recoveries, what remains a constraint is the network expansion.

Space constraints

“Setting up these facilities at petrol stations is getting increasingly difficult, given the space constraints at the outlets and also on account of stringent explosive regulation norms. Standalone auto LPG facilities too will be difficult to justify…” as the investments required in both land and infrastructure costs is huge,” adds Mr. Srikumar.

Since 2010-11, the number of new auto gas dispensing stations (ALDS) added by the companies has been comparatively less. While 117 facilities were added in 2010-11, the next fiscal saw only 45 ALDS. In the first half of the current fiscal, only four new facilities were added.

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