An increasing number of parallel marketers of liquefied petroleum gas are being forced to wind up business in the face of mounting losses resulting from the continuing subsidy on domestic LPG.

More than 32 parallel marketers have already closed shop, and a few major ones, like Exxon-Mobil, have also put up the shutters on their LPG business. Public sector Bharat Petroleum Corporation Limited pulled out of its joint venture with Shell, which was set up for the sole purpose of selling LPG in the parallel market.

The south India-based SPIC has also sold its stake in its joint venture with Caltex because of unbearable losses, while TotalFinaElf has curtailed its expansion plans. SHV, a leading player in the global LPG business, has also put on hold all further investments in its Indian operations.

It had invested a mere Rs 400 crore (Rs 4 billion) of the Rs 1,600 crore (Rs 16 billion) it had originally planned to invest in the country. Shri Shakti, another big entrant, is understood to be in dire financial straits.

The parallel marketers of LPG had invested more than Rs 1,100 crore (Rs 11 billion) in building up infrastructure for the import, bottling and marketing of LPG based on the government's assurance that the subsidy on cooking gas would be phased out and a level playing field created for them vis-à-vis public sector oil firms.

The marketers, who had hoped to gain from the dismantling of the administered pricing mechanism in the oil sector, were now feeling "cheated".

Contrary to their expectations, LPG subsidy, which was to come down to 15 per cent in 2000-01, had increased from Rs 70 a cylinder in 1998-99 to Rs 160 a cylinder now.

They said though international prices of LPG had shot up from $194 a tonne to $275 a tonne at the beginning the last financial year, the government had not allowed oil PSUs to raise the retail prices of domestic LPG in line with international prices.

In the Budget for 2003-04, the government had pegged the LPG subsidy at Rs 45.17 a cylinder even though the total subsidy worked out to Rs 160 a cylinder at current international prices.

As a result, oil PSUs are having to subsidise customers by an additional Rs 115 on each cylinder of LPG sold.

As the parallel marketers have to source their LPG at international prices, they cannot match the subsidised price of LPG being sold by PSUs.