Essar Oil wants to distribute subsidised cooking gas cylinders if the government allow this, its chief executive has said. Essar Oil is planning to enter the domestic cooking gas, or liquefied petroleum gas (LPG), distribution segment that is expected to expand by 60% in three years as the government has set a target for state firms to enroll 100 million new cooking gas consumers.
“We would like to get into domestic LPG distribution but the subsidy is an issue. The government should sort out the subsidy issue and allow private players into this,” said Lalit Kumar Gupta, chief executive of Essar Oil. He, however, didn’t confirm if Essar has written to the government seeking permission for this or suggesting any change in the way subsidy is disbursed that would allow private players an entry in this rapidly growing segment.
Essar’s bigger rival, Reliance Industries, has already written to the government, expressing its intent to enter subsidised domestic LPG distribution, beginning with the cities. Reliance argues that every domestic cooking gas customer should be treated equally and the current practice of limiting subsidy to just the customers of state firms be scrapped. For this to happen, the government may have to bring in a system whereby it directly transfers subsidy into customers’ bank accounts. The government then reimburses state companies.
Essar currently doesn’t have any cooking gas distribution but Reliance has a base of about 1 million consumers to whom it supplies non-subsidised cylinders, mostly in Gujarat and Maharashtra. Essar Oil sells LPG produced at its Gujarat refinery to state firms. But a collapse in oil prices that has dramatically shrunk subsidy and a direct cash transfer to consumers have made private players reconsider business opportunity in this fast growing segment.
Total LPG consumption in the country has grown for the last 34 months in a row and jumped 7.8% in the first quarter of this fiscal year. Domestic packed LPG consumption grew 6.4% in the quarter as 4.25 million new customers were acquired. Reliance Industries is planning to lure away many of the 10 million LPG consumers who have given up subsidy with better services. Entry of private players in the domestic subsidised space has the potential to raise the service level for consumers and challenge. Cory Joseph Womens JerseyShare This