Tuesday, September 25, 2012

Private sector allowed to import LPG in Nepal

The government has finally opened up import of LPG by private players. Chandi Lumbini Gas Storage Company has been permitted to import liquefied petroleum gas (LPG) from Malaysian petroleum giant Petronas from the end of October. It will hopefully lower NOC's deficit as most of the users in commercial scale can now get LPG from the new private company (that too with ease, lets hope!). Additionally, (hopefully) consumers do not have to wait in queue at retail stores to get a LPG cylinder.

Excerpts from a news story in The Kathmandu Post:
Chandi Lumbini will buy gas and oil from Petronas, mix and refine the fuels at IndianOil Petronas at Haldia and then sell LPG in Nepal.

[...]The company said it would make bulk deals and its LPG would be used for commercial purposes only. It has invited Nepali bottling plants, auto filling plants and bulk consumers interested in doing LPG business. The company said that even NOC can buy its products.

[...]Chandi Lumbini made a fresh bid to be allowed to import LPG after the government announced a dual cylinder system from Oct 17. Under the plan, LPG would be sold in colour-coded cylinders, red for household use and blue for commercial use. LPG in blue cylinders will be sold at the actual price while red cylinders will be sold at a subsidised rate.

The proposed system will allow Chandi Lumbini to sell its products at the commercial rate. At present, NOC incurs a loss of Rs 363.60 on a cylinder, resulting in monthly losses of Rs 436 million.

[...]Nepal and India signed a Petroleum Supply Agreement in 1974 appointing IOC as the sole supplier of fuel to Nepal. Prior to that, major oil companies based in India like Exxon and Chevron used to retail fuel directly in the Nepali market.
It is good that the government is allowing private players in this hugely inefficient and fiscally burdensome sector. At the outset, just because private players enter the market doesn't mean things will be alright given a hugely distorted procurement, distribution and consumption networks. The challenge would be to stop leakages, i.e. not allowing commercial users to purchase discounted cylinders. It would require strict supervision and oversight of the entire process. Else, things won't improve much.