Petroleum major Caltex has threatened to review its plans to continue its operations in the country until the government fails to reduce subsidy on liquefied petroleum gas (LPG) from 40 per cent to 15 per cent by April 2002.
"We've already invested Rs 200 crore in the domestic market and we are not making any profit," Caltex chief executive officer Rajen Adarkar said. Caltex has a tie up with Chennai-based Spic. Adarkar said the government had assured the private sector players that the subsidy would be reduced from April 1, 2001 but the date was postponed to April 1, 2002. "If it doesn't happen now, we would be forced to review our Indian operations," Adarkar said.
Some of the other oil majors are also learnt to have indicated that they might pull out if the government doesn't provide them with a level playing field.
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The household LPG consumption constitutes over 90 per cent of the total consumption in the country. This household sector is dominated by the two public sector undertakings (PSUs) -- Indane and HP. The absence of a level playing field prevents the private LPG marketers from operating in the sector in any significant manner.
"Based on assurance from the government that the subsidies would be brought to the level of 15 per cent by April 2001, private companies invested around Rs 650 crore in creating infrastructure in terms of import terminals, storage and distribution and bottling facilities in many areas, thereby taking the total investment to over Rs 1,000 crore. But the subsidy continues to remain as high as 40 per cent," president of the Indian LPG Industry Association (ILPGIA) S K Hazra said.
The increasing subsidy amounted to Rs 4,000 crore in 2000-01 which is likely to go up to Rs 7,000 crore in 2001-02.
ILPGIA officials recently met senior officials from the ministry of petroleum and natural gas. "The subsidy issue should be resolved by granting suitable exemption through customs duty, central excise and sales tax equivalent to the subsidy amount," Hazra said.
Another founder member of the association, Hindustan Aegis LPG Bottling Co Ltd has invested around Rs 1,100 crore in its local operations, out of which Rs 800 crore was invested to set up port LPG terminal. The company has recorded a cash loss of Rs 68 crore.
"While the government promised that the subsidy would come down and we would be provided with a level playing field, the subsidy has actually gone up with the increasing LPG prices in the international market. The price of LPG for domestic bottling is one of the lowest in the world as the government continues to provide substantial subsidy on cylinders marketed by the public sector oil companies. This has provided the state companies an unfair edge over their private counterparts," V Rajeev, executive director of Elf Gas India Ltd, and vice-president of ILPGIA, said.