Can CNG vehicle owners expect relief after petrol and diesel rate cut?

Responding to a petition and also to the worsening air pollution in Delhi, the Supreme Court had in 1998 directed that all the buses, taxis and auto rickshaws will have to switch to CNG.  The apex court had also ordered the setting up of 70 CNG stations to meet with the increased demand.

After initial hiccups -- which included a waiting time of over 10 hours at CNG stations-- the national capital finally took the leap of faith. And by 2021, it claimed to have the “cleanest public transportation system”.

Apart from the reduced pollution, another big reason for vehicle owners for switching to CNG was the huge difference in operating cost of the vehicle.

But, over the years, the gap has narrowed down substantially.

On Saturday, the central government slashed central excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 a litre, providing much-needed relief to households that have been hit by 8-year high inflation.

The same day, Indraprastha Gas, which retails CNG in the national capital and adjoining cities, hiked the fuel’s price by Rs 2 per kg to Rs 75.61. This was the 13th increase since March 7.

In all, the CNG price has risen by Rs 19.60 per kg or 35% during this period. And in the last one year, prices have increased by Rs 32.21 per kg or 60%, according to data compiled by news agency PTI.

IGL Managing Director Sanjay Kumar said the prices are likely to remain elevated in the near future due to high international prices of natural gas.

Similarly, Mahanagar Gas which supplies CNG to Mumbai and its suburbs, increased the MRP of CNG by Rs 4 per kg on April 30 to Rs 76 on April 30. 

While hiking retail prices, Mahanagar Gas cited historically high cost of regasified LNG which is being blended with domestic gas to offset the shortfall in the availability of domestic gas for CNG and PNG segments. 

The company also cited the rise in the prices of locally produced gas. The Centre had raised the price of locally produced gas from old fields for April-September to a record high of $6.1 per million metric British thermal units (mmBtu), an increase of 110% from $2.9/mmBtu.

But Mahanagar Gas said that the revised price still offered savings of about 57% and 27% as compared to petrol and diesel respectively at the current price levels in Mumbai.

The Maharashtra government had on April 1st reduced the Value Added Tax on CNG from 13.5% to 3% providing relief of 6.00 rupee per kg. But the relief was short.

Following the recent fuel price relief, the Society of Indian Automobile Manufacturers said the auto industry is keenly looking forward to similar support on CNG prices in order to help the common man, facilitate public transport and enable a cleaner environment.    

For instance, Delhi’s public transport, including cabs, autos, taxis and buses, is majorly CNG driven. Around 1 lakh auto rickshaws and a similar number of taxis are currently plying in Delhi, which levies no VAT on CNG. 

Various auto-rickshaw, cab and taxi unions have been demanding a hike in fares and slashing of CNG prices to offset the impact of rising fuel prices.

Sourav Mitra, Director - Energy, CRISIL, said international gas prices are at very high levels due to the war in Ukraine, adding that domestic prices may go up further in the second half of this fiscal to as much as $8.5/mmBtu. Mitra says the Centre can consider reducing the excise duty on CNG from 14% while states have the option to cut VAT. The industry has been demanding that natural gas be brought under the ambit of GST.

And why should consumers expect a breather on the CNG front?

According to Sourav Mitra, CNG usage has been growing strongly, even in Tier 2 and 3 cities and any positive direction by govt will encourage use of CNG as a clean fuel.

PTI reported in April that the oil ministry has stopped making a fresh allocation of natural gas from domestic fields to the city gas sector, leading to a hike in CNG and piped cooking gas prices to record levels.

Despite a decision of the Cabinet to give 100% gas supply under 'no cut' priority to the city gas distribution (CGD) sector, current supplies are at March 2021 demand level. 

While the demand has grown at a rapid pace in cities with CNG networks, the lack of fresh allocation from domestic fields meant that operators bought imported liquefied natural gas (LNG) at prices that were at least six times the domestic rate.

Among the ways in which the government can help CNG users include cutting the excise on the fuel, and reducing customs duties on LNG. States on their part can consider a reduction in VAT as natural gas prices are expected to stay elevated. Such relief would not only benefit CNG vehicle owners including taxi and auto-rickshaw operators, but it would also signal the government’s positive attitude towards cleaner fuels.