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India's state oil firms in LPG market battle

State-run Gas Authority of India Ltd plans to sell its production of Liquefied Petroleum Gas itself, officials say, provoking the wrath of established retailers.

GAIL's plans to follow a similar move by state-run exploration firm, Oil and Natural Gas Corp to sell LPG directly to consumers instead of depending on other firms.

Indian Oil, which accounted for more than half of the 7.5 million tonnes of LPG sold in India in 2001-02, has asked the oil ministry to keep ONGC and GAIL out of retail trade, a government official said.

State-run refiners and retailers such as Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp, will also be hit if ONGC and GAIL are allowed to enter the LPG market but IOC, India's largest refiner, has much more to lose, officials said.

"IOC has invested huge amounts in LPG infrastructure. This was done assuming that a million tonnes of LPG will be provided by GAIL and ONGC," a company official, who did not want to be named, told Reuters.

But ONGC, whose Chairman Subir Raha was once the head of IOC's LPG division, complains that IOC and other state refiners were not lifting enough LPG from the firm, causing a huge inventory build up.

GAIL, which has a large network of natural gas pipelines in northern and western India, is keen to add retailing margins to its profit.

GAIL operates a 1270-km pipeline to transport LPG from the gas-rich western coast to Loni near Delhi in the north.

IOC has invested Rs 2.17 billion at four "tap-off points" along this pipeline to sell LPG but GAIL now wants to sell this gas without IOC's help, officials said.

ONGC, India's most profitable firm, accounts for 35 per cent of India's LPG output, while GAIL's share is about 15 per cent. The rest is produced by other refineries.

IOC sold about 3.8 million tonnes of LPG in 2001-02 but produced only one-fourth of it. It got 290,000 tonnes from ONGC, 457,000 tonnes from GAIL and the balance from Reliance Petroleum, India's largest private refiner.

Reliance produces about two million tonnes of LPG a year.

IOC officials say the oil ministry should discourage competition between IOC, GAIL and ONGC as the government regards them as "strategic sector companies" in which government will retain majority control.

"We need to compete against private firms and multinationals instead of competing with each other," an IOC official, who did not want to be named, said.

Foreign firms have also entered the LPG business in India but are unable to compete against subsidised sales by state firms. However, competition is expected to heat up in the next few years as the subsidy will be phased out.

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