India to prune LPG subsidy, foreign firms to gain

India will supply subsidised cooking gas only to the poor after April, a move that has raised hopes of foreign firms with extensive facilities to import and sell gas but unable to compete with state firms selling below cost.

"From April 1, 2002, prices of all petroleum products will be market determined. Only kerosene and domestic LPG will be supplied to target groups at subsidised rates," the government's annual statement on the economy said on Tuesday.

Currently, all domestic LPG consumers are subsidised and the administered price of petrol is kept artificially high to fund the sale of LPG and kerosene below cost.

Foreign firms, which are making huge losses in the skewed market dominated sales of state-run firms, can expect better business if prosperous urban consumers are denied subsidised gas.

The annual subsidy bill for kerosene is Rs 66.30 billion, while the subsidy on liquefied petroleum gas amounts to about Rs 66.90 billion a year if the oil price is $25 a barrel.

The petroleum ministry, which enjoys sweeping powers over the oil and gas sector, was pressing for a gradual cut in subsidy for all consumers after April 1, when India's hydrocarbon sector will be de-regulated.

Bharat Shell Ltd, 51-per cent owned by Shell, Caltex SPIC India Ltd, TotalfinaElf's Elf Gas India Ltd, Exxon Mobil's Mobil Peeves Co and some local companies have set up facilities to import a total of one million tonnes of LPG, but were using barely 30 per cent of their capacity.

They have invested Rs 6.5 billion in port facilities and Rs 4 billion in storage and other infrastructure and are waiting for subsidies to fall to make their operations viable.

India is expected to have a deficit of 1.275 million tonnes of LPG in the year starting April. The Planning Commission has estimated the deficit would rise to 1.59 million tonnes in 2003-04 and 3.39 million tonnes by 2006-07.

After April, the government plans to use the distribution chains of state-run refiners and retailers -- Indian Oil Corp, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp-- to sell subsidised gas to the poor.

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