Vol 3, PW 15 (18 Aug 99) Midstream & Downstream

Unfair competition! Thats an allegation levelled by foreign companies selling Liquefied Petroleum Gas (LPG) in India.

Estimated at 5 million tonnes a year (t/y), the Indian LPG market is growing fast. Demand is so strong that 4m connections (a connection entitles you to get refill cylinders) are being added each year.

SHV Energy of the Netherlands is one of the most successful LPG distributors in India. It plans to invest $428m to develop an import, storage, transportation and distribution network.

Bart Van Den Ven, India Managing Director, tells this report SHV has invested $40m so far. Two import terminals have been set up at Visakhapatnam in Andhra Pradesh and Porbandar in Gujarat.

A third terminal is at Haldia in West Bengal. SHV has also established a clutch of downstream companies and joint ventures for terminal facilities, distribution, and the manufacture of cylinders.

Van Den Ven, however, complains of obstacles on three fronts:- PRICE: More than 80% of Indias LPG is consumed by domestic users. State owned companies enjoy a virtual monopoly in this market by selling LPG to domestic consumers at a subsidised price of around Rs60 per cylinder (the subsidy equals about Rs14).

To make money, private marketers must focus on the industrial sector or remote rural areas which have no access. CONNECTION: Politicians have the power to waive the connection charge of Rs1,000, as happened recently in Andhra Pradesh.

Only state-owned companies can serve this market. TRANSPORTATION: The industrial market is de-regulated but foreign companies find it difficult to compete on price because state owned oil companies enjoy advantages in transportation costs.

Indian Oil Corporation, for example, operates 47 bottling plants with a combined capacity of 1.856m tonnes. It can source from a plant near the customer.

This luxury is not available to private marketeers.