Private sector oil companies in India seek to be part of LPG subsidy transfer mechanism

To get a slice of the 20-million-tonne-plus annual sales of packaged domestic liquefied petroleum gas (LPG), parallel marketers, including Reliance Industries (RIL), Nayara Energy and Total, have asked the government of India to allow them to have a level-playing field with the state-run oil marketing companies (OMCs).

The companies recently met petroleum and natural gas ministry officials and demanded that same as OMCs, they should be allowed to sell subsidised LPG cylinders and be part of the subsidy transfer mechanism. This is expected to expand the market opportunity for these firms. They have also demanded waiver of 5 perf cent custom duty paid on LPG import which is not applicable on OMCs.

At present, only OMCs—Indian Oil, BPCL and HPCL—sell subsidised LPG wherein consumers pay the full price upfront, but eligible beneficiaries subsequently get back the subsidy amount in their bank account. Domestic LPG producers have also been given mandate that total output should be supplied to OMCs. India’s LPG consumption far exceeds its domestic production, and for FY19, the country imported 52 per cent of its LPG requirement.

Some parallel marketers such as RIL (under brand Reliance Gas) and SuperGas sell LPG cylinders but their business size is small given they are not able to cater to those customers who are eligible for subsidy. Only households having an annual income of less than Rs 10 lakh are eligible for LPG subsidy.

RIL through a 2015 order has been allowed to sell 10,000 tonne per month of its own LPG but it needs to ensure that it imports the same amount and supply to OMCs at cost-neutral rate. The Mukesh Ambani-owned company has also demanded that it be allowed to sell its entire LPG output in the domestic market. According to the Petroleum Planning and Analysis Cell, the three OMCs together have 25.21 crore active LPG customers in the domestic category served through a network of 22,654 LPG distributors. The LPG coverage of the country is around 90 per cent and OMCs have 191 LPG bottling plants with rated bottling capacity of around 17.6 million tonne per annum.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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