Date:09/09/2006 URL: http://www.thehindubusinessline.com/2006/09/09/stories/2006090903600100.htm

Back Auto-LPG's success raises oil cos' hopes

Pratim Ranjan Bose

Sales increase by 85 pc

Rising trend
OMCs have cornered most of the sales of auto-LPGs this year
IOC has, for instance, clocked 87 per cent growth in auto-LPG sales during April-August 2006 compared to the corresponding period last year

Kolkata , Sept. 8

Facing heavy under-realisation in sales of petrol, diesel and domestic LPG, oil marketing companies have finally seen a glimmer of hope in auto-LPG retailing. The credit goes to rise in retail prices of petrol and diesel, initiatives taken by various State Governments to put a check on vehicular pollution coupled with a clampdown on illegal diversion of heavily subsidised domestic LPG.

Auto-LPG has a lesser carbon content than domestic LPG and is widely available compared to CNG.

Auto-LPG sales

According to sources, sales of auto-LPG have witnessed 85 per cent growth to 46,501 tonnes, most of which has been cornered by the OMCs, during the first five months of this fiscal.

Apart from demand, a free-pricing mechanism, allowing a decent profit margin of roughly Rs 1,400 per tonne, has made auto-LPG retailing doubly attractive to the PSU oil companies.

Leading the pack is India's largest oil company IOC. The company has clocked 87 per cent growth in auto-LPG sales to 19,374 tonnes during April-August 2006 compared to the corresponding period last year. The company has branded its product as `Auto Gas'.

Aiming to enhance its market share from the existing 42 per cent, the company has drawn up a Rs 50 crore plan to increase the number of auto-LPG dispensing units from a mere 71 in 2005-06 to over 200 in this fiscal.

The geographical coverage will increase from 29 cities to 48. And, if everything goes according to plan, IOC may record a modest profit of roughly Rs 10 crore through sale of auto-LPG this year.

While the profits from the operation look insignificant compared to IOC's loss from sales of domestic LPG, the company believes that considering the increasing stress on cleaner fuel a fast move in auto-LPG market would pay them off in the long term.

IOC made a net loss of Rs 786 crore in domestic LPG operations in 2005-06, after adjusting the oil bonds and discounts from upstream companies and independent refineries.

According to an IOC official, Karnataka, Maharashtra, Kerala, Tamil Nadu, Andhra Pradesh, Gujarat and Madhya Pradesh have witnessed major growth for auto-LPG during the fiscal.

Karnataka is also the largest market for auto-LPG and is selling roughly 16 per cent of the country's total sales, thanks primarily to a State directive forcing auto-rickshaws to convert from diesel.

Private sector

The private sector, which had previously burnt their fingers in domestic LPG sales due to Government control over prices, has also made a beeline to exploit the opportunity in auto-LPG.

Indianoil Petronas Pvt Ltd, a joint venture between IOC and Petronas of Malaysia, has also drawn up a plan to dot Karnataka, Gujarat, Haryana and Rajasthan with exclusive auto-LPG retail outlets beginning this year.

Companies such as Vanaz, Elf, IC fuels, Auto Gas Energy have already set up retail networks in Gujarat, Kerala and Maharashtra.