Speaking at the Petrotech conference held in the national capital last year, Prime Minister Narendra Modi underlined his government's commitment to combating climate change and curbing emissions, thus highlighting the need for sustainability and reaffirming that energy efficiency and energy sustainability remained critical pillars of his vision.
Surely, cleaner and greener biofuels have witnessed a paradigm shift in the recent years. Also, the fast-deteriorating air quality of the Indian cities is pushing the government to move swiftly. And of course, the Supreme Court and the National Green Tribunal keeping a close watch is helping as well.
But as always, the gap between the cup and the lip is still very wide. While the government continues to push all clean technologies with a sense of purpose, an ecosystem, required to promote large-scale adoption of clean fuels, is sorely missing.
The state of automotive LPG (liquefied petroleum gas) in India is a case in point. The third most used fuel globally after petrol and diesel, auto LPG is low cost, much cleaner and can provide a smart energy solution. But even after 17 years of being notified by the government, the use of this fuel is still at a nascent level. This is despite the fact that auto LPG is one of the cleanest fuels available today and extremely affordable.
In fact, India is at the 19th spot globally as an adopter of this green fuel. More than 26 million vehicles consume 26 million tonnes of auto LPG globally while India consumes a paltry 0.35 million tonnes. Countries like South Korea use close to 4 million tonnes of auto LPG. Closer home, Turkey consumes more than 3 million tonnes and runs almost 40 per cent of all private vehicles on auto LPG.
LPG is clean: Auto LPG is a winner, especially when you look at the two most harmful pollutants -- nitrogen oxides (NOx) and hydrocarbons (HC). NOx emissions from auto LPG are 90 per cent lower than that of diesel and about half of compressed natural gas (CNG) emissions. Also, HC emission from an auto LPG vehicle is significantly lower than a CNG vehicle. What's more, NOx automotive emissions are largely responsible for the lung ailments seen across urban areas. On the other hand, low HC emissions, compared to CNG vehicles, should be of key importance especially when we consider that CNG is methane, a greenhouse gas. Finally, particulate matter emission in case of almost all gaseous fuels is negligible.
It's economical: Auto LPG costs 50 per cent less than the petrol price today. This makes its running costs even lower than diesel and comparable to CNG. In a few cities, where CNG may not be enjoying tax exemptions, auto LPG costs can be cheaper. For example, the running cost of an auto LPG vehicle in Delhi comes to about Rs 2.77 per km, cheaper than diesel at about Rs 3.20 per km and comparable to CNG while petrol costs close to Rs 5 per km.
What's hindering adoption of cleaner fuels
While most countries actively promote adoption of cleaner fuels through fiscal and non-fiscal incentives and measures, the regulatory framework in India is exactly the opposite -- it is very hostile. Consider the fact that the LPG, as an automotive fuel, was notified by the government in 2000. But in spite of 500-plus cities covered by auto LPG, the RO level throughputs are appalling. Undoubtedly, there are several key regulatory impediments plaguing this clean fuel sector. Here is a quick look.
The taxation web
First, the maze of taxation for the same product -- LPG. There are some confusingly high and different tax rates for LPG, depending on product usage. There is one customs rate for propane and butane (constituting the LPG mix in India) and another for the mixed product, LPG. Then there is one excise slab for LPG for domestic use and yet another for LPG for other applications. The value-added tax (VAT) is no different either -- we just have a huge maze of taxes for the same product. This, in the past, encouraged undesirable leakages in the system, rewarding the unscrupulous and deterring those who play by the book.
Interestingly, on September 14, 2012, when the government limited the availability of subsidised LPG cylinders to six per year, there was a 21 per cent increase in sales at the auto LPG stations for a 16-day period. Sales fell back to previous levels in January 2013, when this limit was increased to nine cylinders a year. This explains the systemic leakages that I referred to. What the government can do is simply tax all types of LPG at the same rate. This will ensure no systemic leakages and make it simpler for those who play by the book.
As an industry body, we have been highlighting these leakages and asking the government to bring commercial and domestic LPG under equivalent tax rates in the upcoming Goods and Services Tax (GST) regime. GST is an opportunity to make a difference and the government must not lose it.
Having said this about the current taxation web, it is also important to mention here that the government has indicated that LPG will be a part of the GST and that all LPG grades shall be taxed at a singular rate. If this happens, it will provide a huge impetus to the growth of cleaner fuels like the LPG, both in commercial and automotive sectors. Undoubtedly, it will be a huge reform to be undertaken after the huge success of Pratyaksh Hanstantrit Labh (Pahal) that involves direct cash subsidy transfer to beneficiary.
Incidentally, governments across the globe promote alternative fuels such as auto LPG by offering a bouquet of fiscal and non-fiscal incentives. These include sales tax and excise duty exemptions, road or registration tax exemptions, vehicle sales tax exemption or income/profit tax credit for purchasers and original equipment manufacturers (OEMs). In countries such as South Korea, Japan and Australia, auto LPG gets VAT and excise duty exemptions. Similarly, some governments give tax credits to companies for investing in distribution infrastructure for auto LPG. In a nutshell, governments across the world incentivise auto LPG stakeholders.
Rules discouraging conversion of vehicles to cleaner fuels
In India, there are hugely deterring laws, not in line with the global norms, when it comes to conversion of a vehicle to gaseous fuels. The system is so skewed that it actively discourages conversion from a polluting liquid fuel to gaseous fuel. For instance, all conversion kit suppliers need approval for the kit from one of the listed agencies, either the Automotive Research Association of India (ARAI) or the International Centre for Automotive Technology (ICAT). This has to be supplemented with model approvals for each vehicle type on which the kit has to be installed.
The process followed in the US and Europe is that similar kit approvals need to be taken as a onetime perpetual approval until there is any component change.
What kills the industry in India is that, this same approval is required to be renewed every three years even if there is absolutely no change in any component used. The cost for each applicant desiring to get the product approved for key LPG and CNG variants, runs into more than Rs 4 crore every three years. No wonder that the number of players in the kit conversion industry, which had been close to 40 a few years ago, is now reduced to just five-six credible players, owing to this hostile regulatory impediment.
While this issue has been repeatedly brought to the notice of the Ministry of Road Transport and Highways, the fact remains that India is perhaps the only country supporting this regulation. Not just LPG, but the CNG conversion industry is almost dead on account of this.
Delay in NHAI and local permissions
While installing and commissioning an LPG outlet barely takes 30-45 days, obtaining the permission to set it up, especially if it is located on a national highway, can take more than a year. In fact, several companies abandoned their plans to set up auto LPG stations as they ran into huge cost overruns on account of the despicable red tape. Again, the local no-objection certificate (NOC) from the concerned District Magistrate or the District Collector takes a long time to materialise. Approvals, be it from the National Highways Authority of India (NHAI) or from the district administration, should not take so long. Both central and state governments need to mandate that grant/refusal of such permissions should not take more than 30 days.
Other alternative fuels still not functional
While electric vehicle is an option, the well-to-wheel emissions need to be considered, particularly for a nation like India that generates most of its power from coal. CNG is another option, but the focus on the same needs to be reviewed in the context of high capital investments and high conversion costs, not to mention the high NOx and HC emissions.
Finally, LPG is a low-hanging fruit
Auto LPG is a low-hanging fruit and the Indian government can leverage it immediately to improve air quality. It can cheaply and quickly replace diesel and petrol across the country as the fuel can be transported by tankers and sold through existing filling stations, unlike the CNG that requires laying of pipelines, which is a time-consuming and capital-intensive process.
To further promote the use of gaseous cleaner fuels like the auto LPG, the government can adopt it for its own use. Once mandated by the central government to be used for all its vehicles, alternative fuel vehicles will see an immediate rise in demand, thus triggering OEM interest and kick-starting the alternative fuel industry.
Finally, the government needs to play the role of a key enabler here. The deteriorating air quality in the Indian cities may soon become a national emergency, killing more people annually than any military conflict ever would!
Suyash Gupta is Director General, Indian Auto LPG Coalition
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