Domestic LPG diversion leads to higher imports

Domestic LPG cylinders being diverted for commercial use is becoming a key concern for oil marketing companies. The diversion has also led to a spike in demand, leading to higher imports of the commodity.

In January alone LPG sales rose by 9.2 per cent and imports rose by 46.1 per cent annually.

?Though it is difficult to give an exact figure, on an average 15-20 per cent of the domestic LPG is being diverted for commercial use,? a senior oil industry official said.

The trigger for the diversion is the wide gap between the retail prices of domestic LPG (14.2 kg cylinder) and the market price of commercial LPG (19 kg cylinder).

?Commercial LPG is sold at a price which is at least 2.5-3 times higher than domestic LPG depending upon the international price of the petroleum product,? the official added.

While domestic LPG is being sold at Rs 345.35/cylinder in Delhi, the cost of its commercial counterpart ranges from Rs 1,150 to Rs 1,300/cylinder (depending on the market price). Currently, the public sector retailers ? Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation ? are selling domestic LPG at Rs 320.38/cylinder below market price.

?The arbitrage in pricing is evident by the fact that the prevailing international LPG price is over $1,000/ tonne. So, the imported LPG is at a much higher rates,? the official explained.

To meet the enhanced domestic demand, the companies are maintaining supplies through indigenous production and imports. According to their assessment, the demand of LPG (both domestic and commercial) in the current year (2011) is expected to be 15,038 thousand metric tonne (TMT). As against this projected demand, 10,405 TMT is indigenously available and the balance quantity is being imported.

Imports of petroleum products in January rose 57.4 per cent annually to 1.518 million tonnes (mt), pushed significantly by higher LPG imports.

LPG imports grew by 46.1 per cent annually to 490,200 tonnes. As against December (2010), imports of LPG in January grew by 44 per cent.

LPG sales in January rose by 9.2 per cent to 1.277 mt year-on-year.

The Minister of State in the Petroleum Ministry, Mr R.P.N. Singh, recently told Rajya Sabha that based on complaints of black marketing/ diversion, action had been taken in 322 cases against erring LPG distributors during April to December 2010. Further, 2,838 raids were conducted on commercial establishments during the same period in which 18,443 domestic LPG cylinders were seized.

According to industry officials it is very difficult to solve the problem of diversion unless State Governments step in. ?The best way to curb diversion is to do away with subsidy,? they say.

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