India Together: Rural LPG: On the back burner

India Together: Rural LPG: On the back burner

GS paper 4

The distribution of LPG to rural households is far from satisfactory. An analysis of the reasons by the Prayas Energy Group finds that a comprehensive review of the performance and accountability of different institutions in the supply chain is needed, along with an independent regulator.

12 February 2021

While India has achieved nearly total coverage of Liquified Petroleum Gas (LPG) connections, the latest publicly available data from the National Sample Survey Office suggests that nearly half of rural India still relies primarily on solid fuels for its cooking needs. One of the reasons is that the domestic LPG sector is faced with many challenges of providing quality service, especially in the rural and under-served areas, leading to low usage of LPG. As a result, gains made in household health and quality of life for rural women could be reversed, as they are forced to relapse to solid cooking fuel options.

While affordability and behaviour change are crucial in ensuring sustained adoption of LPG, the quality of supply and service (QoSS) also plays a key role. Merely responding better to customer grievances will not suffice. Systemic issues need to be identified and remedied through strong accountability mechanisms. These issues impact the supply chain at different points, and the result is that reaching this cooking option to rural consumers has been severely constrained.

Researchers at the Prayas Energy Group, a policy analysis and advocacy group based in Pune have recently published their findings about LPG distribution in rural areas. Their research has helped identify a number of steps that need to be taken to bring accountability to different parts of the supply chain, and also improve the quality of service experienced by customers. This is pertinent now more than ever before as the urban transition away from LPG and towards Piped Natural Gas is increasingly likely, leading to a situation where OMCs are left with rural and under-served consumers in the domestic LPG segment, making it important for them to understand and fix the issues with their QoSS.

LPG distribution in rural areas still has a long way to go.

1. Improve accountability across the supply chain – While there has been some focus in the past on making distributors more accountable to keep the supply chain in good health, the accountability of the OMCs also needs to be enhanced. These companies form a crucial link in ensuring quality of service and supply. Disaggregated performance data needs to be made publicly available and updated periodically in well-defined formats. In order to identify gaps in performance across the supply chain, it is vital that a service delivery audit of the domestic LPG sector is done every 2 years, looking into various aspects, and the audit report needs to be made public on the web site of the Ministry of Petroleum and Natural Gas.

These measures would surely reveal issues with accountability across the supply chain. Another suggestion is to create a separate web portal for distributors with information on performance ratings, inspection findings, action taken reports, distributor grievances and remedies. This will empower distributors to demand better services from OMCs.

2. Encourage financial viability and performance of rural distributors – Domestic LPG distributors in general and rural distributors in particular could be provided with performance-based incentives so that they get a greater margin on the commissions based on normative levels of performance. Further, rural and urban distributors should have different commissions, with rural distributor commission being higher as rural distributors will mostly have lesser sales and higher costs per consumer in comparison to urban ones. Provisions in the Distributorship Agreement – which the OMCs enter into with distributors – that enable additional sources of revenue for distributors should be used to permit distributors to engage in business activities not in conflict with OMC interests. Further, OMCs and the LPG Distributors Association should together consider targeted information-sharing and mentorship exercises for rural distributors to help them improve their operational practices.

3. Consultatively revise the rules of the OMC-distributor relationship – The distributors are in an unequal relationship with the OMCs. Currently, many provisions of the Agreement and  are one-sided, causing a difficult legal and business environment for distributors to ensure QoSS for the consumers. In order to make it fairer and encourage improvements in QoSS for consumers, the Agreement as well as the Marketing Discipline Guidelines should have minimum standards of performance for service parameters and penalties for both the parties. Further, consumers should also receive compensation in their bills for poor performance by the OMCs in meeting pre-identified targets. A model Agreement and Guidelines with these features should be drafted consultatively and revised periodically to reflect changing ground realities.

4. Improve consumer communication – One of the ways to ensure that grievance redressal systems and accountability mechanisms are coupled is by increasing consumer awareness. This can be achieved by replacing the Domestic Gas Consumer Card which is used now with a printed bill akin to other consumer-facing, service delivery sectors like electricity. The printed bill should have information such as the detailed price build-up of the cylinder, the last few digits of the Aadhaar-linked bank account and UID, and the number of subsidised refills for the financial year if applicable. The reverse side of the bill could have information on safety, standard operating procedures, norms for targeted delivery times, and grievance redressal, all printed in permanent ink.

5. Appoint an independent regulator – The domestic LPG sector not only lacks a comprehensive accountability system but also a strong independent regulatory framework to tackle many of these challenges. An independent regulator, through consultative processes, would enact realistic SoP regulations with clearly defined QoSS parameters and compensations to the consumer and distributor against critical parameters, and hold the various stakeholders, including the OMCs, accountable. The regulator must not only oversee the implementation of principles agreed upon in the Model Distributorship Agreement, but also ensure the setting up of Consumer Grievance Redressal Forums and appointing an Ombudsman for appeals against CGRF orders. Petroleum and Natural Gas Regulatory Board (PNGRB), which is the downstream regulator for the notified petroleum products segment, would be the appropriate institution for this purpose.

6, Consider taking over the rural distributorships – Since greater adoption of LPG in rural areas is a social welfare obligation, MoPNG should suitably support OMCs in their rural distributorship ventures. Since rural distributor unviability is a business reality not just due to distributors shirking QoSS responsibilities, OMCs can consider running unviable rural distributorships. To further rural distribution networks, OMCs could also consider opening new rural distributorships themselves. They could also consider a scheme with an option of buying out interested existing distributors. The MoPNG and OMCs should come up with the modalities of implementing this suggestion through a consultative process, even as the OMCs run some rural distributorships on a pilot basis to understand and address specific challenges of viability in this sector.

Conclusion

A consistent narrative runs through these recommendations. The relationship between OMCs and others in the supply chain is skewed in favour of the former. As a result, distributors in particular find it difficult to run their businesses viably in rural areas, impacting the goal of reaching LPG to consumers. In some cases, the OMCs may have no choice but to themselves distribute the LPG in rural areas. The unequal relationship has also left distributors powerless to force a change, which can therefore only be brought about through a fairer relationship upheld by independent regulation.

This article has been extracted and adapted from the recent publication of the Prayas Energy Group, titled “Accountability in Domestic LPG Service Delivery”, by Narendra Pai, Ashok Sreenivas and Ann Josey. The full document may be downloaded from the Prayas web site at www.prayaspune.org.

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