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1. Introduction 2. LPG in India – Overview
a. Demand – Supply Scenario b. Major Players
3. Understanding LPG Supply Chain
a. Procurement b. Storage c. Distribution and Retailing
4. LPG Marketing
a. Market Segments b. Brand Positioning c. Internal Marketing
d. Customer Retention Techniques 5. Challenges to extending LPG for domestic use a. Supply and accessibility b. Affordability
c. Pricing policies
6. LPG Programmes in India
a. Deepam LPG scheme b. Gramin LPG Vitrak-GLV
7. Competition Scenario
Coal. In India. it’s more propane and in summers. Kerosene. Currently. Liquefied Petroleum Gas is a mixture of Propane and Butane and with tertiary gases. in winter. In 2001. Among OMCs and PMCs b. So. it was not feasible even to the then middle class to shift to LPG.5% of the households using LPG used it as their primary cooking fuel though the share of firewood as primary fuel was 52% and 10% each on Crop Residue and Cow dung Cake.9% in Industry. As per its prices. Both businesses run on base of understanding & regulation. mass production of gas cylinders started in India with rising imports of LPG from middle-east countries and that lead to easing the supply demand gap. LPG finds is prime usage in Domestic sector with 92. Industrial is 70% propane and 30% butane whereas for domestic the values reverse as 30% propane and 70% butane.e. it’s more of butane. Govt Policy acted as a spark to the fuel.a. It started as an alternative to the then popular fuels of India. distribution of LPG began with Burma Shell Corporation in 1955.4% in commercial sector and 2. No sooner.350 kJ/kg and 49. .4% as Auto LPG and 1. This differentiation leads to difference in LPG supplied to Industrial and Domestic Sector. there was a long list of applications for registration of connection. In India. 3. Govt promoted LPG by providing subsidy during connection and later on base of per unit of gas. Threat from substitutes Conclusion Exhibits Introduction LPG i. Slowly. gas and distribution points. wood and Dried Dung Cake. LPG in itself is largely a mixture of Propane and Butane with a high calorific value of 50. Oil companies had not planned for such demand in terms of cylinders. 510 kJ/kg. This value varies with season as well.3% consumption in households. the LPG business is fragmented in two parts: Industrial & Commercial LPG and Subsidised Domestic LPG. 17.
In the year 2004-2008. On January 1. Major Players In India. This supply consisted of 55% from PSU OMCs. 25% from Essar & RIL and remaining 20% from imports. This difference in pricing scheme often lead to black marketing but companies are now a days vigilant enough to inhibit this practice. only OMCs operate and competition is largely limited by dividing boundaries of area for distribution of LPG. HPCL as a pioneer is including GPS device in its cylinders to restrain the fraudulent practice. 2007 there were 181 bottling plants across India 49% owned by IOCL. and 23% by HPCL. Demand for LPG is growing at a rate of 6% per annum whereas supply is not constant and gap is filled by imports. 27% by BPCL & NRL. 27% by BPCL & NRL and 23% by HPCL. LPG for Domestic customers is supplied at a subsidised rate and for industrial & commercial rate is market determined.5% each in Urban/Rural and Rural area. In Domestic LPG. In the PMCs. Domestic Cylinder: 5 kg & 14. Demand for LPG in the Year 2007-08 was 10178 TMT corresponding to supply level of 11. Bottling plants had a capacity of bottling 8987 MMTPA as on April1.Industrial & Commercial LPG is a more competitive business segment than the Domestic LPG as it has competition between OMCs and PMCs together. Pricing and allocation of Distribution joints is decided by corresponding bodies. . Commercial Cylinder: 19 kg and Industrial Cylinder 35 kg.2 kg. 278 MMTPA. 2009. share of LPG retailing largely depends on the LPG producing capacity of its refineries. demand stood at 90-95% of Supply. The LPG being distributed is in 4 cylinder sizes. LPG in India – Overview Demand Supply Scenario LPG in India is largely a regulated market. There were 9366 distributors of LPG on the same date with 73% presence in urban area and 12. It leads the market with 49% share. IOCL has the highest number of refineries and largest capacity for producing LPG.
Pipeli Pipeli . Understanding LPG Supply Chain Procurement In India. the ports and the refineries. The combined LPG producing capacity of RIL & Essar is 3% of the total indigenous LPG production capacity of India. LPG is brought to the large storage facilities with the use of pipelines. LPG is either imported from outside or is produced as a by-product in the refineries and petrochemical plants. These two companies generate 90-95% of their revenue from the Commercial and Industrial segment. Imported LPG arrives at the country’s ports by help of LPG tanker ships. Storage From both. Here the LPG is stored under highly refrigerated and pressurised condition.major players are RIL and Essar.
A dealer sends the empty cylinders to the required bottling stations via truck. When the customer’s LPG cylinder is emptied. A group of dealers in a given area receive the filled cylinders from the designated bottling plant. and hence. The dealer recovers the cost of transporting cylinders from commission on a per refill basis. For the domestic customers. it is replaced by the local operating dealer at the customer’s location itself. Dealer holds the stock of filled cylinders. the company pays the transporters for both delivery and return trips to the storage facilities. The various bottling plants in turn receive the LPG from storage facilities with the use of tankers. The filled cylinders are then sent back to the dealer. LPG is distributed in packed form through dealers.Oil Refinery Distribution and Retailing From the storage facilities. LPG is directly distributed to bulk industrial purchasers via large bulk road tankers. Tanke LPG Cylinder Supply Tanke Bottling Storage . These bottling plants take back the empty cylinders and load the truck with the filled ones. The tankers are dedicated to transporting LPG.
Since LPG was under short supply. OMCs were importing the product to meet the requirements. 1993 introducing the concept of Parallel Marketing Scheme (PMS). Since then. Government issued a notification. inadequate import infrastructure coupled with limited allocation of Foreign Exchange at official rates made it difficult for OMCs to import LPG and meet the full demand. However. parallel marketers have been importing and marketing LPG under PMS. dated 3rd August. Under PMS. In order to overcome this difficulty. parallel marketers (private companies) were allowed to import and market LPG in the country to packed and bulk consumers in both domestic and non-domestic (commercial and industrial) sectors. 1993 LPG was being marketed in the country by the Public Sector Oil Marketing Companies (OMCs) only.LPG Marketing Dealer Till September. .
143 9.075 PMS Sales Year 2001-02 2002-03 2003-04 TMT 178 208 216 Since domestic LPG marketed by OMCs is subsidized. The subsidized price of LPG is provided only for the domestic segment. In the industrial category. parallel marketers could not make significant impact in this sector. however. there are bulk users too. 2008 state-wise and Exhibit 02 shows the growth in LPG marketing in India.e. and the commercial and industrial rates are as per the market decided prices. commercial and industrial use (rest 10%). who are served in bullets (huge tanks). for domestic (90% of business). they are able to compete with OMCs in nondomestic commercial/industrial sectors (about 85-90% of the sales of parallel marketers are in these sectors).737 8. as the usage depends on the type of consumer and to lessen the transportation cost. Exhibit 01 shows the number of consumers of LPG till April. . i.789 Non-Domestic Packed Bulk 171 99 208 198 105 181 (Fig. Accordingly the weight of the cylinder varies (standard weights).040 7. in TMT) Total 7. Market Segments The LPG market is segmented according to the purpose of the use of LPG as a fuel.Following are the details of LPG Sales by OMCs and parallel marketers till 2003-04:OMC's sales Year 2001-02 2002-03 2003-04 Domestic 7.310 8.
who are the interface between the consumers and the company. to act in accordance with ethics and see that there is no diversion of cylinders. Internal Marketing Though the LPG business is ruled by the domestic clients. This arbitrage incentive is due to the fact. in absence of any other substitute fuel as of now. Deliverability assurance and Safety measures is one of the key features of the company providing the service. Industry and commercial segment provides the revenues but not enough to compensate for the losses made in the domestic segment.Brand Positioning One of the important features is that neither the business persons nor the consumers are able to see the product. implies that it overshoots the Supply. that domestic cylinders are priced low and hence commercial enterprises have a tendency to acquire those at a premium. Demand. though lesser than the designated commercial LPG product. Thus. the subsidy regime doesn’t allow the companies to eke out profit from this division. As mentioned before that LPG business is mostly self-propelled. the LPG SBU is a loss making unit. therefore building the perception of trust and importance in the minds of the consumers makes a difference. . Internal marketing is important to orient the distributors. Thus some direct marketing measures are implemented in the form of pamphlets and stuff and some customer awareness programmes in mass media.
the distributor represents the company and mostly the consumer chooses that distributor which is closest to his/her locality. Exhibit 03 depicts the penalties that have been imposed in case of any breach of law. Though there are a few factors which improve the service level of the business: . Customer Retention Techniques The LPG business is mostly self propelled and doesn’t need much marketing measures.The steps taken by the Government of India/OMCs (oil marketing companies) to prevent diversion of domestic cylinders are as under. In the domestic category.
The commission is shared amongst the distributor and the company in the ratio of 70:30. few OMCs started taking measures to improve consumer satisfaction by providing home delivery service of household goods by collaborating with Haldiram’s and other retail goods providers. as the prices charged by the company is not regulated and hence can be tinkered with. For the industrial and consumers the reliability of providing the LPG cylinders in normal as well as emergency times is of utmost priority. Challenges to Extending LPG for Domestic Use Supply & accessibility .Again. Another important aspect is the price of LPG. as the opportunity cost is huge in industry.
The shortfall was made up by importing LPG to the tune of 2759 TMT. Supply of reliable cylinders Another challenge pertaining to LPG distribution is assuring the reliable supply of refill cylinders. Cylinder management As we know that LPG has to be stored under pressure. Total LPG imports of 3112 TMT have been planned against the projected demand of 12570 TMT at a growth of 6%. metal cylinders are required.7 MMT.For the year 2009. an initial deposit fee is required. The stretched import capacity of the industry at present is about 414 TMT/month which equals to approximately 5. There is a wide . The selling price of domestic cylinders is less as compared to the commercial cylinder selling price which is fixed on the actual Import parity price. this infrequent delivery of refill cylinders serves as a disincentive against switching entirely to LPG. During the calendar year 2008. International factors such as seasonal variations. Diversion of LPG cylinders The reason for diversion of domestic cylinders by distributors is because the domestic LPG is subsidized. changes in international politics cause the problems.In order to meet the increasing demand of LPG by domestic as well as auto fueling sectors the country needs additional L PG production capacity. The combination of the start-up cost and the cash outlay at each refill (which typically cannot be broken up into smaller installments) presents a serious barrier to the uptake and regular use of LPG by lowincome households. the actual sale of LPG was 11820 TMT against the total indigenous LPG availability of 9228 TMT. Signing up for two cylinders to avoid running out of cooking fuel would further increase the start-up cost of LPG service. adequate transportation (pipelines & rail tank wagons). To cover the cost of cylinder manufacture. refills may be delivered once a week or once every other week.0 MMTpa. and distribution network. Import challenges The LPG import requirement during the year 2009 is estimated to be about 4. For those users that do not keep a second cylinder. Again. For small and remote markets. this could mean going without fuel for as long as two weeks.
and the lumpiness of relatively high refilling bills. For example LPG stoves are required to be designed to operate at 60 percent efficiency or higher. If we assume 50 percent stove efficiency for LPG. 40. On comparing the fuel rates for different fuels. Affordability The economically disadvantaged face the problems of high first costs of LPG (connection and equipment). and 40 percent for kerosene in high-pressure stoves (where kerosene is gasified before combustion). Of this.12 per 14.a 14. 35 percent for kerosene in wick stoves. GAIL and OIL are sharing 1/3rd and the rest is borne by OMCs. ONGC. As per the Subsidy Scheme notified by the Government. as per the subsidy sharing mechanism. OMCs are only allowed to market subsidized domestic LPG. ONGC. Expressed in rupees per mega-joule (MJ) of energy delivered. we see that the expenditure occurred for using LPG is much more costly as compare to others.2 kg cylinder of LPG is equivalent to 21 liters of kerosene as a liquid and 19 liters gasified kerosene.2Kg cylinder) and Oil Companies are incurring loss of the balance Rs. GAIL and OIL are to be allowed to market subsidized domestic LPG.2Kg cylinder).112. Due to this most of the supply intended to go to domestic consumers are transferred to commercial consumers which results in shortage for above said consumer base. Out of the loss incurred on domestic LPG sales. It will also posses challenge for the government to ensure the supply of subsidized product to domestic consumers & prevent its diversion to non domestic purposes.08 per Kg (Rs. particularly because of the subsidies already offered. They would have to follow price regulation and bear loss. may not be interested in selling subsidized domestic LPG under the subsidy Scheme.2.2 Kg cylinder). Government is paying Rs. LPG producers.difference between the domestic and commercial rates.72.7.94 per Kg (Rs.77 per 14. The subsidies do not reach most of the poor as they are not yet users of LPG.5. Pricing policies These are a challenge.86 per Kg (Rs. The present total subsidy on domestic LPG marketed by OMCs is Rs. and there is also a heavy burden on the central exchequer. especially private producers. If producers like RIL.65 per 14. field measurements show efficiencies considerably lower than the design specifications. LPG is more expensive than kerosene for low income group population. and loans are difficult to service without financial returns from the investment. there is diversion of subsidized LPG from domestic to other uses. .
This project was launched on the 9th .LPG Programs in India Deepam LPG scheme An important scheme implemented for the expansion of domestic LPG use has been the Deepam LPG scheme in the state of Andhra Pradesh.
Results in terms of the number of connections allotted: till March 2002. a target of 1.000/year/family). and the season i. there is higher demand during the monsoons. LPG was found useful chiefly during the rainy season because of more employment (implying more cash available for refueling). Later. The High Court directed that the scheme be confined only to “white cardholders” (i. social status. . Each connection was accompanied by a oneoff subsidy to the extent of the initial cost. • • • Factors affecting the refill rate were: distance from distribution points. to overcome the barrier to fuel switching. reduce the drudgery of collection of/cooking on firewood.154 million spread over 22 districts was indicated. 2002). The Department of Rural Development identified the beneficiaries. reduce pollution and improve the health of women. The retention rate was down to 85% in less than three years because of cylinders having been given away to relatives and being lent to civil servants in local areas (NIRD.e. cleaner environment. over 80% of non-white card-holders in the region also did.724 beneficiaries (including some of the urban poor) were listed. The scheme itself was considered attractive because of the initial fee waiver. those below Rs 11. Learnings from Deepam Scheme • The scheme was not very efficacious. The Department of Civil Supplies provided a one-time deposit of Rs 1. 88% of the urban target and 91% of the rural target had been met (NIRD. Salient features of this scheme are: • • • The scheme was administered by the State government Departments of Rural Development and Civil Supplies and distributed through OMCs. • • • The lists were given to the LPG dealers of the oil companies.e.July 1999 for the distribution of domestic connections to women of below the poverty line (BPL) 41 families in the rural areas of the state. who were also expected to ensure training of the allotted in the use of LPG stoves. It was meant to reduce dependence on firewood. and help during the monsoons. 2002). Participants’ perceived advantages of LPG were: timesaving. more labor demand and moisture making collection and preservation of biomass difficult.000/connection towards the cylinder and regulator. because although all white-card holders participated. the numbers were increased so that by 2002 about 1..
inability of suppliers to supply stoves and accessories on time. • Implementation bottlenecks within the scheme that contributed to dissatisfaction included: limited choice. According to the program. Rajiv Gandhi Gramin LPG Vitrak Ministry of Petroleum & Natural Gas has formulated a scheme.per month. This will not only help in conservation of forests but will also have positive impact on environment as well as on the health of our rural womenfolk. Rajiv Gandhi Gramin LPG Vitrak Yojna. This envisages the increase in LPG population coverage from 50% to almost 75% by 2015. namely. and unwanted envy of non-beneficiaries. high refill costs of refills. so that dependence on conventional fuels like wood. Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) in addition to their Marketing Plan for setting up regular LPG distributorships. coal etc. out of which half may go for LPG. RGGLV will be setup by OMC who have its bottling plant nearest to the identified cluster of villages. The scheme is primarily to reach LPG in villages. . Contrary to 2500 cylinders. reduction in kerosene quota (in municipal areas). the program will be sustainable for cluster of villages having about 4000 families and consumption of 7 kg per month. per cylinder. GLV will be set up with the potential of 1000 cylinders. minimum refill/sale potential for sustaining the RGGLV.• However. and irregularities with beneficiaries also having to incur Rs 5 – 30 extra. for collection/delivery. which is going to be launched very soon. • Suggestions from local self help groups (SHGs) for improvement include: credit for refills and reduction in cylinder size. Identification of locations would be finalized by the OMCs based on the present penetration/coverage. is reduced. The selection of the candidate will be done by draw system. This Scheme would be implemented by the Oil Marketing Companies (OMCs) namely Indian Oil Corporation Limited (IOC). the perceived disadvantages were: implementation bottlenecks. The net income for the proprietor expected is Rs 7664/. co-ordination problems at the local level for the supply arrangements.
with lack of price regulation and hence better scope for margin there is an intense competition in the form of: 1. OMC has to sell its product at a price decided by the government. which leaves the OMCs to compete on market share. Price 2. Inter OMC-PMC competition Inter OMC competition: OMC’s is India is seen as the facilitator to the nation’s development. chances of competition for market share in domestic segment are also very limited. In domestic segment. That’s why OMC’s are regulated such that to avoid unwanted friction among themselves and concentrate their whole energy to nation’s cause. Promptness in delivery 4. the regulatory body. So. there exists no scope of price war. to avoid unwanted friction and hence deadweight loss to the society. in industrial segment. Hence. So. But. Service 3. Though. due to subsidised price prevailing in the domestic segment has not shown any interest to compete with the OMCs. In order to that the number of dealerships of a company is decided by the committee in accordance to their market share and presence in the region. They are as follows: 1. MOPMG tries to maintain the optimum number of dealers in an area. Inter OMC competition 2. But. Hence. in industrial segment it is giving OMCs run for their money. apart from churning profit for sustainable existence and growth. it has to operate in accordance with the nation’s interest. there exists a special type of competition among the OMC’s of India. Hours of catering or working hours OMC-PMC competition: PMC. Threat from substitutes: .Competition Scenario Competition Scenario: There are mainly two categories of competitions existing in Indian LPG industry.
can be used on Natural Gas. Combustible particles. no blackening of vessels. Simply. please do not attempt to alter/modify the existing installation yourself or through any unauthorized person. At present. No changing or handling of gas cylinders. 14.only. other appliances like geyser. etc. drop boxes.(approx. PNG is Safe: Natural Gas catches fire only when it forms a 5-15% mixture with air whereas LPG catches fire when it forms 2% or above mixture with air. Make payments after you consume. 50/. Most preferred fuel in vehicles in Mumbai today. Few. LPG is equivalent to 18 units of Natural Gas shown in your meter. air conditioner. through banks. price of LPG is Rs. • Our supply designs. PNG is versatile • Apart from cooking. PNG is Clean: • • • • • • Being a gaseous fuel. Net.Today. 205/. Sulphur content less than 10 PPM. PNG is considered to be most eligible fuel to replace LPG. However. PNG is Economical. executions and operations are being done as Per International best Practices. ECS. properties of PNG which are regarded as giving it an edge over LPG are follows: PNG is Convenient • • • • • • • • 24 hours uninterrupted gas supply. No more last minute emergency.) every time. vehicles etc. PNG works out to be up to 10% cheaper than LPG. Conclusion . very clean compared to any other fuel with more than 94%. Contribution for a cleaner society.2 kg..you consume Gas costing Rs. Burns with a flame always hence. saving Rs. 255/. do away with cylinders and its associated problems.
we studied the supply and logistic involved in LPG distribution and how the number of agency in a region is optimised to reduce the dead weight loss to the society. Lastly. we dealt with the scope of growth for LPG in Indian market and threat from its close and worthy substitute PNG. Further. be it the implications of subsidy.We have seen the contrast between the different market segments prevailing in Indian LPG industry. due to the fact that customer couldn’t see the product which makes it by large homogenous. we saw how the domestic segment is quite different from its counterpart industrial and bulk segment. Exhibits . demands of users or the interference from the government. To be more precise. We had also focused on the marketing party which we found to be difficult or at least peculiar.
4.2008 HPCL BPCL Total (Col.4.4.2008) ('000 Number) State / UT 1 States Andhra Pradesh Arunachal Pradesh Assam Bihar Chhattisgarh Delhi Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Nagaland Orissa Punjab Rajasthan Sikkim Tamil Nadu Tripura Uttar Pradesh Uttaranchal West Bengal Union Territories Andaman & Nicobar Chandigarh Dadra & Nagar Haveli Daman & Diu Lakshadweep Puducherry Grand Total IOCL/AOD 2 4090 123 1834 1688 558 2656 9 2980 1621 1039 390 812 2375 3021 2194 1519 218 109 188 140 558 2663 1791 114 6183 256 6202 1247 3447 53 206 0 0 3 115 50397 As on 1.6 230 94180 99562 Source.2007 7 10342 116 1813 2254 987 4011 391 5067 3088 1179 1327 1026 5225 5046 3875 12415 206 101 181 129 1395 4406 3861 109 8798 238 9688 1428 4807 51 313 30 40 2. Exhibit: 01 Growth in LPG Marketing in India Item Unit Growth in LPG Marketing . Public Sector Undertakings.State-wise and Company-wise LPG Domestic Consumers (As on 1.2-5) 4 5 6 4427 0 24 315 327 551 244 1073 583 141 824 162 1835 751 1078 5346 0 0 0 0 624 882 1032 0 1079 0 1361 71 969 0 66 30 26 0 91 23912 2290 0 61 370 169 908 146 1217 1053 71 143 129 1361 1584 840 6008 0 0 0 0 276 1097 1250 0 2595 0 2687 183 704 0 46 0 16 0 47 25252 10806 123 1919 2373 1054 4115 399 5270 3257 1252 1358 1103 5571 5357 4112 12873 218 109 188 140 1458 4642 4073 114 9856 256 10250 1501 5120 53 318 30 42 3 253 Total as on 1.
Indigenous Production Imports .000 and Penal Action 2nd instance Fine of Rs 50.PSUs LPG Markets Bottling Capacity (P) Provisional * Domestic And Non-Domestic Source: Oil Companies TMT TMT TMT TMT Lakhs Lakhs Nos.PSUs Imports .PSUs* LPG Distributors .2 retail selling price of 14.PSUs Customer Enrolment Year-End Position LPG Customers .Pvt. kg cylinder and 19 kg cylinder on per cylinder basis. Exhibit: 03 Bibliography .9 949 9363 4359 8448 2007-08 6743 2156 676 11482 64. Consumption .9 1018 9365 4393 8697 2008-09 (P) 7008 1937 409 11775 53.9 886 9270 4288 8122 2006-07 8454 1968 321 10530 53. Specific provision for this under MDG is mentioned below: Irregularity 1st instance Diversion of domestic cylinder to nondomestic use Fine of Rs 20.000 and 3rd instance Termination recovery of differential in recovery of differential in retail selling price of 14. TMTPA 2005-06 7717 2450 433 9976 44.2 kg cylinder and 19 kg cylinder on per cylinder basis. Nos.2 1068 9366 4420 8967 Exhibit: 02 Details of Provisions of Control Order/MDG/DA to Contain Diversion of Domestic LPG for Unintended Purposes Marketing Discipline Guidelines (MDG) 2001 has been implemented which imposes heavy penalty including termination of distributors found indulging in diversion.
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