Centre’s offer to states: Expedite piped natural gas rollout, get additional commercial LPG supplies

With the effective halt in maritime traffic through the critical chokepoint of the Strait of Hormuz, India’s LPG supplies have been majorly hit. The country depends on imports to meet 60% of its LPG needs, and 90% of those flow through the Strait of Hormuz—the narrow maritime passage between Iran and Oman that connects the Persian Gulf with the Gulf of Oman. This effectively means that roughly 55% of India’s LPG consumption volumes are currently unavailable. While the government has prioritised LPG supplies to households, commercial and industrial users like restaurants are facing severe shortages of the fuel.

In a letter to the chief secretaries of all states and union territories on Wednesday, Petroleum Secretary Neeraj Mittal wrote, “In the current LPG shortage scenario due to Middle East crisis, OMCs (oil marketing companies) are providing 20% commercial LPG for states. It would be a smart move at this stage for States to enable transition of LPG consumers to PNG. Therefore, it is proposed that even while LPG for commercial is in short supply, its allocation to be increased to 30% provided States can help in long-term transition to PNG.”

In the letter, Mittal wrote that states can get an additional 1% commercial LPG allocation for formation of state and empowered district level committees with local body executive representation for approving CGD applications and resolving grievances. Another 2% allocation will be made if the state or UT issues orders to grant deemed permissions to all old applications by CGD companies, and also to the new ones “after lapse of 24 hrs of application”, for laying pipelines.

“3% additional allocation for introduce a ‘Dig and Restore scheme’ for CGD entities so they can dig and restore on their own, eliminate restoration charges and substitute them with a Bank Guarantee up to a maximum of Rs 10 lakh per kilometre to ensure satisfactory restoration of digging/laying of pipelines. 4% additional allocation for reducing the annual rental/lease charges for laying/operating CGD network to zero,” Mittal wrote. States and UTs that implement all these four measures will get LPG allocation to meet 30% of demand for the fuel from commercial consumers.

Mittal said that city gas distribution (CGD) companies, which operate PNG networks, have said that that many local bodies levy high right-of-use and pipeline digging charges and lease rents, which has dampened the CGD investment climate. He also cited the slow pace of rollout of PNG connections for household use—just 1.6 crore connections are functional against a minimum work programme commitment of 12.63 crore.

“It is known that excessive taxes on a fledgling business could have strangulating effect on other consequential economic activities of that business. Therefore, needless to say that having reasonable taxes/other charges on CGD activity will lead to revenue buoyancy from attendant economic activity. Thus, to improve the investment environment and expedite adoption of natural gas as a clean fuel and substitution of scarce LPG supply, the State Government may require the local bodies (and for State owned infrastructure) to minimise the level of charges levied on the business CGD entities and improve ease of doing business,” Mittal wrote.

In a media briefing on Wednesday, Petroleum Ministry Joint Secretary Sujata Sharma said that with incentives on the table, the “onus is on states and UTs to take this reform forward and expedite approvals”. She said that the LPG supply situation remains concerning, even as the OMCs continue to maintain LPG supplies to households at regular levels. Sharma also said that priority sectors continue to receive protected natural gas supplies, including 100% supply to the household PNG and compressed natural gas (CNG) for transport segments, while supplies to industrial and commercial consumers are being regulated at around 80%.

Although natural gas supplies to India have also been hit due to the Strait of Hormuz’s closure, the situation is not as concerning as in the case of LPG. India depends on imports to meet roughly half of its natural gas needs, with 55-60% of the imports coming through the Strait. Over the past few days, the government has been appealing to consumers to switch to PNG if it is available in their vicinity. Some CGD companies have also announced incentives like some volumes of free gas and waiver of connection charges to encourage consumers to sign up for PNG connections.

The Petroleum and Natural Gas Regulatory Board (PNGRB) has also advised CGD companies to deploy additional resources and step up outreach to provide connections quickly to consumers wherever networks are available. According to the government’s estimates, there are roughly 60 lakh households that are in the vicinity of PNG coverage, and can quickly switch to piped gas connections. As against 33.3 crore households with LPG connections, the number for PNG connections stands at around 1.5 crore. But while LPG is supplied in portable cylinders, PNG requires pipeline connectivity at the doorstep.

Apart from prioritising LPG supplies to households over commercial and industrial consumers, the government ordered refiners to maximise LPG production, and directed them to divert propane, butane, and other streams from petrochemical manufacturing to LPG production. According to Sharma, these measures have led to an increase of 40% in domestic LPG production vis-à-vis pre-West Asia conflict levels, and a further increase is likely over the next few days. The government has also increased waiting times between cylinder bookings by households from 21 days to 25 days in urban areas and 45 days in rural areas to check hoarding behaviour and manage demand and supply. The government has also activated alternative fuel streams like kerosene, fuel oil, biomass, and even coal for commercial consumers to help them cover their LPG shortfall.