SHV Energy to up focus on industrial LPG pie

To piggyback on its 'total energy solutions' for growth

SHV Energy India Private Limited, supplier of 'Super Gas' liquefied petroleum gas (LPG), is increasing its thrust on the industrial and the commercial sectors to drive growth.

The strategy is also part of the fact that parallel LPG marketers in India are unable to price their LPG competitively due to huge government subsidies doled out to nationalised oil companies.

Part of the $10-billion Dutch multinational SHV Group, the world's largest LPG gas distribution company, SHV Energy India is counting on its expertise to provide 'total energy solutions'.

It offers advice on aspects such as cost economics, equipment suitability and conversion to LPG; safety; training etc. It can be either new installations or existing installations that use LPG or any other fuel.

"SHV can provide technical expertise to cost-effectively convert processes from fuels such as coal, furnace oil, high speed diesel, electricity, light diesel oil, acetylene etc," said Ajay Kumar, chief executive officer of SHV Energy India.

The company sold 1.1 lakh tonnes of LPG and recorded a turnover of Rs 250 crore last year. Of the total sales, the domestic (home) segment constitutes a mere five per cent, while commercial and industrial sectors account for 20 per cent and 75 per cent respectively.

The company expects a growth rate of 10-15 per cent during the current financial year.

SHV has invested close to Rs 500 crore in its Indian operations. It has set up two terminals at Visakhapatnam and Porbandar and 12 filling plants spread across the country to carry out the filling and the supply of gas.

The company offers its solutions as a turnkey project based on a BOOM (Build, Own, Operate, Maintain) basis. The services range from offering advice on aspects such as cost economics, equipment suitability and conversion to setting up its own LPG gas installation at the plants with regular supply for long period.

It has over 100 such installations in the country so far and hopes to grow rapidly in this segment.

Kumar said that SHV Energy India was mainly looking at food processing, ceramics, glass, heat treatment plants, poultry, copper, aluminium and brass industries to offer its 'total energy solutions'.

Conversion from electricity to LPG results in 15-30 per cent savings, while liquid fuels conversion to LPG could lead to 5-15 per cent savings, he said.

To a query on the negligent sales in the domestic (home) segment, Kumar said that the private LPG markets could not compete with the public sector companies on the price front as the latter gets subsidies from the government.

Due to subsidy support from the government, the PSU companies could sell a 14-kg cylinder for Rs 280 as compared to Rs 330 for a 12-kg Super Gas cylinder.

The prices vary in proportion to the international crude oil prices. SHV meets around 70 per cent of its LPG requirements through imports.

"The subsidies have made the private players to shift focus from the domestic segment to the commercial and the industrial segments. However, we would like very much to grow in the domestic segment as and when a level playing field is offered," he said.

Since the domestic segment accounts for around 95 per cent of the LPG market in the country, the private players are left with the only small commercial and industrial segments.

Last year, 9.3 million tonnes of LPG were sold in the country. Of the total market of Rs 200 billion, the private LPG markets account for around Rs 750 crore only.

With the LPG market itself growing by over 10 per cent annually, the parallel LPG markets feel let down by the government policies. Add to it is the fact that the landed cost of LPG has shot to $460 per tonne now from $140 in 1996-97.

The government cut subsidy on domestic gas LPG to Rs 22.58 per cylinder in February this year. The LPG subsidy per cylinder was Rs 45.17 in 2003-04 and Rs 67.75 in 2002-03.

The private LPG players see no hope of raising their share in the domestic segment unless the government phases out subsidies. They have for long been pleading with the government that it at least restrict the subsidy to the lower economy segment and also curtail diversion of domestic LPG to commercial segments like hotels.

That this measure would also help ease subsidy burden on the government is their contention.

As against a revised estimate of Rs 6,292 crore for LPG and kerosene subsidy in 2003-04, the budget estimates for 2004-05 have been fixed at Rs 3,500 crore.