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Press Release [FREE Access]
Petro Intelligence » Modi Govt Gets Ready To Step On The Gas

By R. Sasankan

The first moves of the Modi government in its second avatar are being closely watched as the pundits try to divine which direction it will go as it lays out the roadmap to attain new goals, new growth ambitions. So, when the new administration appointed a new committee of experts headed by Kirit Parekh to throw up suggestions relating to the marketing of LPG, it set the dovecotes aflutter.

The formation of a committee doesn’t usually make big headlines in India. Normally, committees are formed to evade action or soft pedal a demand from a pressure group. Sometimes, they could be formed with a defined purpose: to help a particular company attain a narrow objective. Prime Minister Narendra Modi has shown little faith in such talking shops and has consistently baulked at the idea of forming committees to push someone’s self-serving interests.

But the Parekh committee – formed so early in its second tenure – has a broad motivation of achieving a goal that this government is very keen to attain in the next five years. Clearly, the Modi government is driving an agenda to achieve a goal that will burnish its credentials as a regime desirous of working to uplift the masses. In its first term, the Modi government worked hard to make LPG connections available to the poor, freeing rural women from the tyranny of wood-burning, soot-filled kitchens. But it was evident that a behavioural shift towards LPG use in kitchens would be impeded by the expense of costly cylinder refills. That is the challenge that the Parekh committee will now attempt to address.

I could immediately sense that the appointment of such a committee soon after assuming power signalled a major policy decision. The government probably wanted to do this during its previous tenure itself but was forced to defer it. It now wants to act fast to make up for the lost time. The terms of reference of the committee clearly adduce to the fact that my reading of the situation is correct.

The most crucial term of reference is the scope of liberalising government policies for private participation in LPG marketing. Private participation in LPG was allowed more than two decades ago through parallel marketing of LPG. But it could not really take off as a result of the continuing subsidy on domestic LPG. Mr Modi is now pushing for private participation in order to achieve a public good – and that could have huge implications for the fortunes of the petroleum industry.

The basic thrust of the new strategy is to raise competition in LPG. Prices will come down as a result and modern cooking fuel will reach more Indian homes. The previous UPA and NDA governments also had picked the brains of first-rate energy advisors who consistently supported the idea of universal access to LPG as it would do more for gender equality and the health of women and children, especially the girl child. The girl child is the one who collects traditional fuels and spends time helping the mother in the heavily- polluted, smoke-filled kitchens.

The Modi government promoted LPG into India’s villages as a deliberate policy which turned out to be politically rewarding. India has attained 94 per cent LPG coverage and the tempo cannot be allowed to slow down. India is the second largest user of LPG in the world today and should soon move to the top spot.

The challenge is to ensure that rural homes refill the LPG cylinder once it reaches their kitchens. Otherwise, the entire scheme will collapse. Be it LNG or LPG, price is the most crucial aspect that will determine the success of the grand plan. The government should, therefore, ensure that the price of LPG comes down. This is possible only if the government permits overseas private participation. The Middle East is a good and cheap source for LPG. They extract LPG from wet gas which will be cheaper than the cost of LPG manufactured by public sector companies from refined petrol produced from imported crude oil.

Aramco and Adnoc, the corporate giants of the Middle East, are keen to enter India’s retailing market. They are not really interested in retailing transportation fuels such as petrol and diesel. LPG should be their first priority and private participation, which the experts’ committee is expected to recommend, will accommodate the immediate ambitions of Aramco and Adnoc. They will be able to bring cheap LPG to the Indian market. Most of India’s LPG imports have been sourced from these countries.

The entry of Middle East players can prove to be disastrous for the PSU oil marketing companies such as IOC, BPCL and HPCL. Mr M.A. Pathan, former CMD of IOC who is on the experts committee, is unlikely to demur when the other members on the committee push for the participation of overseas players in the arena of LPG marketing. One way to get around the problem of a potential loss of turf is to allow the Middle East companies to form joint ventures with Indian companies. India’s RIL has already started marketing LPG in small cylinders as a trial project as it squares up to face the challenge from overseas giants.

Experts say the government should remove all duties on LPG and simply add a heavy GST for sale to commercial users or those using it in vehicles. It is clear that there must be zero tax for domestic sales. Imported LPG can be bottled at coastal import locations for coastal markets or shipped by rail in bulk to bottling plants in interior markets. The current bottling facilities of the PSUs can use the bulk imported LPG for this purpose. Facilities currently used to gasify petrol will slowly be closed down. The only thing the government must ensure is that there is honest, competitive and transparent bidding for LPG.

 



To download the latest issue 'Volume 26 Issue 7 - July 10, 2019', click here
Petro Intelligence [FREE Access]
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