India withdraws new import duty on private-sector LPG importers as regional prices mount

India's government has withdrawn a new 15% duty on private-sector importers bringing propane and butane into the country effective Sept. 1, following rising Saudi Aramco Contract Prices and amid unhappiness in the non-government sector over the adverse impact of the additional import levy.

Oil ministry officials confirmed the withdrawal when contacted by S&P Global Commodity Insights.

The funds collected under the Agriculture Infrastructure and Development, or AIDC, cess are aimed at improving the agricultural sector and were passed by the parliament around end-June/early-July.

But the private sector deemed it an additional levy and not a part of the government revenue program.

The private sector made a representation to the government that the duty affects 100% of their import volume, but only 5% of the imports by national oil companies and public sector undertakings, and was, therefore, discriminatory, an industry source familiar with the matter said.

A finance ministry amendment July 1, stated that "nothing contained in S.No 10AA shall apply to imports of Liquefied Propane and Liquefied Butane mixture, Liquefied Propane and Liquefied Butane by the Indian Oil Corp. Ltd., Hindustan Petroleum Corp. Ltd. or Bharat Petroleum Corp. Ltd. for supply to household domestic consumers or to Non-Domestic Exempted Category (NDEC) customers."

The AIDC cess was withdrawn officially via a Finance Ministry notification dated Aug. 31 and came into effect Sept. 1.

"The withdrawal move has been a balancing act between the expectation of high global crude prices and ease in domestic inflation," said an oil ministry official who declined to be identified.

The full exemption of LPG, liquefied propane and liquefied butane would give relief to importers of these products, the official added.

Analysts said the decision to exempt these imports from the AIDC would help cut the burden on importers and ensure that the cost implications of the farm cess were not passed on to consumers down the line.

The farm cess, spread across 29 items, including gold, silver and imported apples, alcohol (except beer), was conceived to improve agricultural infrastructure, including facilities such as cold storage units, warehouses and market yards. This cess fund was crucial for raising farm production and ensuring better post-harvest management.

"It's difficult to say whether it (the withdrawal) was due to the representation by the private sector," the source familiar with the matter said.

"However, as the (Saudi) CPs started rising, the government removed the AIDC probably not to burden the end-industry too much."

Escalating prices

Saudi Aramco set the October propane contract price at $600/mt, up $50/mt from the September term CP, and the October butane CP at $615/mt, up $55/mt on the month, the company said Sept. 28.

The monthly increase was the third in a row after the drop in July CPs, underscoring strong heating demand ahead of the North Asian winter, healthy demand for cooking fuel in India and Indonesia for year-end holidays, and latent feedstock demand among Chinese propane dehydrogenation plants.

FOB Middle East propane and butane premiums to the CPs were assessed as high as $43/mt in the past week, according to S&P Global data, as trading firms have also been bidding for evenly split cargoes, even as supply is limited by lagging spot offers from Aramco Trading Co.

In the face of mounting regional prices, India on Aug. 29 slashed LPG prices by 18% for domestic households, in an attempt to curb food price-led inflation that hit its highest rate in 15 months in July.

India has stopped subsidizing LPG usage for 230 million customers since June 2020 to help ease the subsidy burden on the budget, but gives Rupee 200 each via direct benefit transfer to some 95 million low income users .

In its representation against the added import duty -- -- which is on top of the existing 5% levy on the sector -- the private sector pro-tem group noted the threat the 15% tax poses to the survival of private businesses, dampens LPG's viability as a transition fuel and its innovation, makes existing investments unviable and stirs uncertainty for future ones, while increasing the near-monopoly of state oil marketing companies.

The source said the private sector is in the process of forming a formal group to take up such matters in the future. Major private-sector LPG companies in India include TotalEnergies, SHV, Aegis, Reliance and IPPL, a joint venture between Indian Oil and Petronas, plus other smaller players.