‘Misuse of LPG has stopped after direct subsidy transfer scheme’

Bharat Petroleum Corporation Ltd (BPCL) is taking advantage of the international oil price fall to re-launch its branded fuel ‘Speed’, which was discontinued in several cities due to its high price.

In an interview, BPCL Chairman & Managing Director S. Varadarajan spoke to The Hindu, about the impact of low energy price as well as the substantial subsidy reduction that the government will witness next year due to decontrol of diesel prices and the LPG PAHAL scheme. Excerpts:

 

International crude prices have plunged to nearly $48 per barrel. How is it benefiting the Indian economy and BPCL?

 

The overall impact is doing wonders for all. Since our country is heavily dependent on oil imports, any downward revision in crude oil prices results in a straight reduction in our import bill. From the larger national perspective, it gives huge opportunity for us to save precious foreign exchange. 

Customers get product benefit since prices have definitely gone down over a period of time. Also, since the transport segment depends on diesel to a large extent, inflationary pressure has come down. One could see that it has reflected in the general price trend. 

Every sector, which uses energy, gets the benefit of low crude prices. For example, the aviation sector, which is passing through a rough patch, is getting benefited now because prices have dropped to almost half. So, most airlines will show profits during this quarter. To that extent, it is reflecting on the overall service sector as well as manufacturing. All these sectors are getting benefit of lower energy prices. 

For the oil downstream companies per se, there will be an impact because of the inventory. We carry inventory, and that is a one-time hit. When prices go up, we get inventory gain and when prices fall drastically like this, we take a one-time hit in inventory losses. As we move along and price stabilizes, we will get back to normal course. But in this quarter, there will be a certain amount of inventory loss especially for the refining companies. 

That is one negative aspect. Otherwise, from an overall perspective, low crude oil price is good for the country, good for the economy, and good for individual companies that are dependent on energy and it will reflect in lower price regime. 

Recently the government decontrolled diesel prices and reintroduced the direct subsidy transfer scheme. How have these benefitted the oil industry, in general, and BPCL, in particular?

 

Diesel, becoming free of subsidy, is going to reflect the international prices. Since crude prices are down, there has been a reduction in diesel prices. It is mark-to-market. So, the government does not have to worry about any subsidy. It will reflect any upward or downward price movement in international crude oil prices. 

As far as the PAHAL scheme is concerned, this is the Direct Benefit Transfer of LPG (DBTL) scheme which has been rolled out all across the country. As on date, 55 per cent of the population have already availed the benefit. The Central Government’s Jhan Dhan scheme of opening of accounts for the poor has also facilitated the transfer of subsidy to lot of customers. Under the new scheme, which was launched in November, over nine crore customers of total LPG customer population of 15 crore have already come into the scheme, and they have already started receiving the subsidies through their bank accounts. 

This is one of the largest direct benefit transfer schemes anywhere in the world. Already, Rs.2,500 crore to Rs.3,000 crore of funds have gone into the accounts of the beneficiaries. 

Since the end-users are identified and the money is directly getting transferred into their bank accounts, the scheme has been done in a very customer-friendly manner. No customer will have to pay higher prices for LPG cylinders. 

Earlier, we were subsidising the domestic cylinders, and at the same time, there was a free market price for commercial and other usage. 

There was always a feeling that some portion of the subsidised cylinders were taken out for commercial and industrial use. Today, the price is going to be the same. 

So, the incentive for somebody to take the gas out and use it for commercial purpose is not viable. So, the misuse has been stopped completely. The end-user has been identified and the subsidy is directly going to the bank accounts. So, diversion is not happening and the end-user is getting the subsidy directly. For the company, it provides upfront revenue at the full level, although there is a subsidy still being given. The larger governmental subsidy has substantially gone down from Rs.1.40 lakh crore. Next year, at current prices, the government will have a subsidy burden of hardly of Rs.40,000 crore to Rs.45,000 crore.

Since petrol prices have come down, demand for branded fuel is going up. How about Speed?

 

Speed was one of our first initiatives in branded fuel. In between, since the duty structure was very high, customers had found the price differential very high and the price of fuel was also going up in tandem with high international crude prices. 

Fortunately, the prices have now come down, and there has been a huge reduction in the price of petrol. Also, excise duty structure has been corrected. 

So, we see a huge opportunity of re-launching Speed in the market. Since the overall price of petrol is low, we think customers will go for this. There has been one group of customers who remained with Speed despite high prices. This population is still being serviced at select outlets but now opportunity has come to expand the market. At one point of time, around 25 to 40 per cent of our (petrol) customers had actually shifted to Speed. We do feel that opportunity has come to get those customers back to the fold of Speed so that they get much cleaner fuel, have better driving experience, and get much better mileage. We are re-launching Speed in soon in cities where it was withdrawn in the past. 

What is the update on the Kochi refinery expansion project?

 

The project is progressing very well. It is on time. We are scheduled to complete the project in May 2016. We are spending around Rs.16,000 crore on expansion and the refinery capacity will go up from 9.5 million tonnes to 15.5 million tonnes. 

The complexity of the refinery will also go up from 6.2 to almost 9. The gross refining margin will improve. We are on track, and we are receiving good support from the government.