• Government’s drive to widen LPG customer base faces twin hurdles

    The government’s plan to offer cooking gas to 5 crore poor households and expand the overall consumer base by 60% over the next three years may run into twin hurdles: inadequate distribution capacity and low purchasing power.

    Hoping to drive out smoke-generating fuels from kitchens, mainly in rural areas, the government plans to add 10 crore cooking gas consumers, half of them from poor families – an ambitious target for a country that has 16.5 crore liquefied petroleum gas (LPG) consumers after decades of efforts at taking clean fuel to homes.

    In the first year, state-run Indian Oil, Hindustan Petroleum and Bharat Petroleum are expected to add 3 crore consumers. “It’s a very stiff target,” said a state oil company executive who didn’t want to be identified.

    “The biggest challenge will be the logistics needed to serve so many new consumers, especially in the remote areas. Oil companies just don’t have enough distributors for this,” said Deepak Mahurkar, Leader-Oil & Gas Industry, at PwC.

    State companies currently serve consumers through about 18,000 LPG distributors and plan to add 10,000. Executives at state oil companies say appointing so many distributors quickly wouldn’t be easy.

    “The hard part will begin now. It will be a challenge for our distributors to reach out to the deeper rural and tribal areas, where we don’t have much presence today and which is where most new consumers will come from,” another state oil company executive said.

    The purchasing power of potential new consumers could be another hurdle and many of the poor families likely to be provided subsidised gas connections may not necessarily use it much, said Satwant Singh, a former executive director (LPG) at Indian Oil, the country’s top distributor of cooking gas.

    “In our experience, lower-income rural consumers do not seek more than 4 refills a year, while the government provides for 12 subsidised refills. This means many of these cylinders meant for the poor will end up on the black market,” he said.

    A commercial LPG cylinder costs about a third more than a non-subsidised domestic cylinder in Delhi due to customs duty and sales tax. The taxes vary from state to state. This difference in prices can become an incentive for consumers and distributors to divert cylinders to the black market, Singh said.

    Some poor families might be encouraged to give away their existing regular connections to opt for fresh subsidised ones, while some others who have already benefitted in the past under another scheme might seek a fresh subscription as the new one is being issued in the name of women, Singh said.

    The executives said it would be a headache for oil companies to filter data of poor families eligible for Rs 1,600 subsidy on fresh connections and is putting in place an elaborate system for that. James Bradberry Jersey

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