LPG expansion, a stimulus for oil marketers

The government's plan to make liquified petroleum gas (LPG) available to three-fourth of the country in the next five years is set to be a major economic stimulus for the allied industry--firms supplying cylinders and pressure regulators to the three national fuel retailers·HPCL, IOC and BPCL. The move is also expected to create more employment in filling plants and in transportation.

The proposed drive to make LPG use more widespread will also result in the cleaner fuel being available to three-fifths of the rural folks by 2015, petroleum ministry officials said. Now there are only 11 crore consumers for LPG across the country, which is set to rapidly expand, they said. In the last five years, consumption of subsidised LPG has grown by about 30%.

Equipment procurement for the massive supply expansion would be staggered over the next half a decade so that there is no supply constraints. Although the three retailers gave 60 lakh new connections last fiscal, over two lakh prospective customers had to wait due to a short-supply of cylinders.

The three state-owned retailers are now about to issue tenders for purchasing cylinders and pressure regulators for this fiscal. A petroleum ministry official told FE that Indian Oil Corporation would soon procure over a crore new LPG cylinders and about 70 lakh regulators for release this fiscal. Bharat Petroleum Corporation is now in the process of procuring 36 lakh cylinders and 31 lakh regulators. Hindustan Petroleum Corporation is also acquiring equipment by a similar measure.

Production of LPG cylinders and pressure regulators is a major allied industry that is present across states such as Madhya Pradesh, Rajasthan, Tamil Nadu, Andhra Pradesh, Haryana, Maharashtra, Punjab and Orissa. Industry sources said the segment has been witnessing double-digit growth.

The fuel retailers are also in the process of stepping up the number of LPG distributors across the country—9,500 now— by 15% to enhance their reach. Under the government's plan to make LPG available to the poor through a new scheme named after former Prime Minister Rajiv Gandhi, at least 35 lakh poor families would get connections this fiscal. To find enough equipment to facilitate fresh connections, the government has asked agencies that provide piped natural gas in cities to take an undertaking from consumers to surrender their existing LPG connections.

While the massive expansion drive of LPG retailers would lead to an increase in the government's subsidy for the product, it is expected to reduce the subsidy on kerosene, a large part of which (up to 35% of public distribution kerosene) is now diverted to adulterate the costlier diesel. The government intends to cut down the kerosene allocation to states by a fifth as rural electrification and LPG availability goes up. This would also help in the government's larger goal of reducing carbon emissions. And the proposed reforms in the oil sector such as targeting LPG subsidy to the poor through direct cash transfers could stabilise the use of LPG in cities, where rich consumers benefit mostly from the government subsidy....

Source: Financial Express

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