The slowing consumption of LPG, kerosene and diesel will offer succor to the finance ministry in the form of lower subsidies as it looks to contain a widening current account deficit (CAD).
According to a Petroleum Planning and Analysis Cell (PPAC) data, LPG consumption fell 4% to 3691.1 million metric tonne (mmt) and kerosene consumption dipped by 17% to 1.8 mmt in the April-June period. Diesel consumption stood flat at 18.5 mmt in the same period.
As a result, under recoveries of fuel retailers ? IOC, BPCL and HPCL – on diesel, LPG and kerosene declined 43% to R25,579 crore in the first quarter over the year-ago period.
Augustine Peter, director-general of PPAC told FE that the LPG cap has led to households moderating cooking gas consumption as they would have to pay market rates on finishing their quota of 9 cylinders. Since April every household is entitled to 9 cylinders of 14.2 kg each at subsidised prices. In Delhi for example, the price of subsidised LPG stands at R410.50, these cylinders have a market price of R832. Households can legally retain multiple connections, but they must declare that subsidy will not be claimed for the additional connection.
A senior official from an oil marketing company (OMC) said that they are seeing a rise in auto and commercial LPG consumption as households are less willing to divert their limited subsidised LPG cylinders to commercial buyers.
?Previously when people had unlimited subsidised LPG cylinders at their disposal they could divert some of it to commercial users at market prices. However, with limited cylinders available now, they are more keen to meet domestic needs,? said the official.
There are around 145 million LPG connections in the country. OMC officials said around 80% of the LPG consumers in the country use around 9 cylinders a year. The government capped the number of LPG cylinders for a household to six a year effective September 2012, but later enhanced the limit to nine per year in January 2013 under pressure from political allies.
As far as diesel is concerned a series of price hikes in recent times has affected consumption. In January, the government declared the deregulation of diesel sales to bulk consumers and over the last few months has announced a series of diesel price hikes for retail buyers.
Industrial demand for diesel has also slowed down due to sluggish economic activity and some buyers shifting to cheaper fuels like furnace oil. Analysts state that diesel sales will continue to remain tepid between June-September which is a seasonally slow quarter for diesel sales.
PPAC officials said kerosene consumption has seen a sharp moderation as the government has reduced the allocation of the fuel to more prosperous states such as Tamil Nadu, Maharashtra and Gujarat.
The reduced allocation has also enabled the crackdown on the large black market that is prevalent in the market where close to 40% of the kerosene allocated through the PDS Is diverted.
Some cities like New Delhi and Bangalore are also running initiatives to achieve a kerosene-free status and are increasingly moving towards less polluting fuels.
OMCs also said rural electrification drive like the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) and move to LPG for cooking is displacing kerosene consumption.