KATHMANDU, April 15: The government has dropped its plan to introduce larger Liquefied Petroleum Gas (LPG) cylinders for commercial consumers after gas bottlers opposed the idea saying it will add undue cost on them.
The plan aimed to segregate gas market into household and commercial users and subsequently introduce different pricing.
Instead it is preparing to issue two differently colored cards - red one for householders and blue for commercial users - to regulate distribution and enforce dual pricing. Nepal Oil Corporation (NOC) said it will start the distribution of consumer cards from the next week.
“We have readied 4 million cards, including 2.5 million cards for household consumers,” said Suresh Kumar Agrawal, acting managing director of NOC. He said the cards will be distributed through LPG dealers.
However, concerned officials said the very volume of cards readied by NOC, which is far above 1.2 million cylinders consumed in a month, and their distribution through dealers almost ´warranties´ that the initiative will fail to yield desired results.
“The new bid simply lacks control mechanism. So, the chance of over-distribution of red (subsidy-entitled) card is very high,” said a NOC source, assessing high chances of leakage of subsidy under the new arrangement.
His opinion was the government´s previous plan of managing supplies and pricing through different cylinders was more reliable than the new one.
Under its initial plan, Ministry of Commerce and Supplies (MoCS) had said it would introduce 19-kg cylinders for commercial consumers including hotels, restaurants, factories, automobiles and other business enterprises. And make use of presently circulated 14.2 kgs cylinders exclusively for household consumption.
It had also said it would then open the prices of cooking gas for commercial consumers, ending subsidy to at least business consumers that guzzles around 40 percent of the total LPG imports. Supply to general consumers, however, would still be subsidized, particularly as political parties and student unions have been resisting opening prices for general consumers.
“The plan was not foolproof to control leakage as companies could unscrupulously make undue earning by supplying cheaper gas (meant for general consumers) to commercial consumers. But different cylinder would have make control possible,” said the source, adding that it would have largely helped the corporation plug the loss through dual pricing.
LPG bottlers´ resistance
But MoCS rolled back the plan to introduce different cylinders and went for different-colored consumer cards after LPG bottlers opposed the plan saying it will unnecessarily add cost upon them. They even claimed it will make monitoring difficult for the government.
“We already have 4.2 million cylinders in circulation in the market. If one-third of consumers are asked to switch to 19 kgs cylinders, what will we do with the existing cylinders? This will create unnecessary pain,” said Kush Kumar Malli, general secretary of NLPGIA.
He also noted that introduction of 19-kg cylinder will require companies to bear new cost, as they will need to arrange larger cylinders as well.
However, bottlers´ arguments were pretty weak. “How will the shift incur cost for company, if they recoup the money of larger cylinders from customers? As for the 14.2 kgs cylinders presently being used by commercial users, they could have easily reused them to expand householder markets,” said the MoCS official.
´New effort ineffective in leakage control´
As for the control leakage, officials and experts said its always a challenging task.
“But, the presence of dual cylinder would have eased monitoring and control of leakage. Monitoring cards will be simply impossible,” said Amrit Nakarmi, energy expert and former general manager of NOC, referring to similar past attempts that failed to plug the loss in kerosene.
Introduction of dual pricing on the basis of consumer cards, which are printed in excess of normal consumption volume, had created more troubles than normal circumstances for the government in the past.
“Controlled distribution of card, firstly, makes little contribution to plug loss, and secondly, it spurs black marketing of cards itself (as based on it people can get hold of subsidized fuel),” said Nakarmi. “Dual pricing without dual cylinder will simply not work” he stressed.
Presently, NOC is suffering a monthly loss of around Rs 1.56 billion from oil business and of that almost Rs 1 billion is coming from LPG alone.
Of the total 15,000 tons of LPG imported in a month, about 60 percent is consumed by general consumers, while remaining 40 percent is guzzled by the business ventures. “Clearly, loss through cheaper supplies to commercial ventures is a gross waste,” even the Parliament´s Public Accounts Committee (PAC) has assessed and repeatedly suggested the government to introduce different cylinders to effectively end subsidy to commercial users.
If PAC´s recommended is implemented, NOC says its loss on LPG would instantly drop by around Rs 400 million a month. However, the new arrangement worked out by the MoCS does not ensure similar result.