Foreign LPG firms threaten pullout

Multinational companies that market liquefied petroleum gas (LPG) in the country have threatened to pull out due to the government's failure in providing them a level-playing field with government-owned companies.

"The government had issued a notification in 1993 that the LPG subsidy would be brought down to 15 per cent of the import parity price by 2001 and phased out by 2002. This has not happened," laments S K Hazra, president of the Indian LPG Industry Association (ILPGIA).

The members of the ILPGIA include the world's leading energy companies such as Elf Gas India, Caltex Gas India, Hindustan Aegis LPG Bottling, SHV Energy India and Shell Gas (LPG) India.

The private LPG marketers claim to have invested more than Rs 1,500 crore in the country so far. Though they together control about 50 per cent of the commercial LPG market, they only have around 1 per cent of the domestic LPG market.

The government subsidises 26 per cent of the household LPG costs, while the rest is borne by the oil companies. The government-owned oil companies are currently losing Rs 170 a cylinder on domestic LPGs.

The prices of industrial and commercial LPGs are, however, calculated on an import-parity basis.

The government pays a LPG subsidy bill of around $2 billion a year. "Almost half of it does not even go to the right people. The middlemen siphon off an estimated 15 per cent of the domestic LPG for industrial and commercial use," alleges Hazra.

Hazra, who is also the director of Hindustan Aegis LPG Bottling, said that the government's stance was discouraging the multinationals from making further investments in the business.

The government had opened up the LPG marketing sector in 1993 by allowing private companies to import and market petroleum products.

The multinational companies which entered the Indian market were told that the government-owned oil companies would gradually move away from the industrial LPG sector and exclusively market for the domestic LPG market, which is subsidised, says the Association.

"However, that has not happened. Our market share in the domestic LPG market has deteriorated due to the subsidies given to the PSUs," said V Rajeev, vice-president, ILPGIA. Rajeev is also the deputy managing director of Elf Gas India, which is a wholly-owned subsidiary of France's Total.

Exxon Mobil, the US-based company, had earlier pulled out of the LPG marketing business in 2002. Spain's Repsol is also reportedly considering exiting the LPG business in India.

"The private players have to import all their LPG requirements. We pay 8 per cent CVD and 5 per cent customs duty on imports. However, the government-owned companies do not pay these duties," said Ajay Kumar, secretary of the ILPGIA and the CEO of SHV Energy, which owns the Super Gas brand.

SHV Energy is a unit of the Netherlands-based SHV Holdings.

While the pull out may take its own time to play out, the LPG marketers have begun the process by holding back further investments.