'Safeguarding' LPG consumers

The problem of defective and unsafe LPG cylinders has been an issue stalking the petroleum industry for decades, but had been greatly magnified after the deregulation of the oil industry in 1998.

What was before an industry dominated by the majors and a handful of big LPG importers is now a beehive of entrepreneurial activity with thousands of new LPG sub-dealers, dealers, refillers, as well as cylinder importers, and cylinder re-qualifiers and repairers. And yes, these certainly include those illegal, fly-by-night opportunists that prey on consumers.

The deregulation of the LPG industry has had its good and bad sides. Foremost among the benefits that LPG users, mostly for household cooking, derive is the markedly lower price — sometimes by even P5 per kilogram. You even get delivery in less than 10 minutes, and free!

The downside, of course, is the proliferation of underfilled LPG tanks. If you have your LPG delivered, or do not weigh in a tank bought at your suki sub-retailer, chances are you may be buying less than the standard 11 kg. One certainly wouldn’t notice a tank that’s underweight by a half-kilogram. At about P55 per kilogram, that’s easily a P25 loss!

Then there is the bigger problem of unsafe LPG tanks. With so many retailers and sub-retailers, it’s easy for illicit shipments of defective LPG tanks from other countries to enter the market.

Once “repaired” to look new and stamped with the required government markings, these often dangerous tanks are surreptitiously sold at big discounts, and resold at lower than the current prices set by legitimate LPG marketers. (A good tank now costs about P1,000 to P1,200, and marketers are claiming this is even below its real cost, given the high price of steel.)

Working within the system

For years, the LPG majors and the big marketers had been trying to work within the deregulation framework to curb underfilling of and unsafe LPG tanks which they suspect are the basic reasons why their market shares are decreasing.

Where else, they argue, would independent refillers and their retail chain get the price cushion to be able to undercut LPG prices to consumers by as much as P5 per kilogram, and still survive?

Mounting an enforcement campaign, as gleaned through past years’ experiences, had not been sustainable — and excruciating, expensive and exasperating.

Even if there were apprehensions and arrests, this was often undermined by the low penalties meted to those caught selling underfilled or substandard LPG cylinders and the long and tedious litigation process involved. On many occasions, these apprehensions become sources of “petty corruption.”

Clamor for regulation

Now, the big industry players are asking government to consider returning to a regulated environment. In fact, they have a heavy hand in the current push by the energy department and the houses of both Congress to regulate the LPG industry.

The LPG Industry Association is at the forefront of the campaign to impose stiffer penalties on malpractices in the LPG industry, which include among others, illegal refilling and patent violations.

The LPGIA estimates that legitimate LPG dealers lose about P6 billion yearly to syndicates distributing unsafe and substandard gas cylinders in the market. These cylinders are often illegally marked with a legitimate brand.

When these defective cylinders go through the system, they are often discovered and culled during regular inspection — with the dealer taking the loss. However, it can also be argued that LPG dealers need to protect themselves by choosing to deal only with retailers they can trust.

Industry records show that three of the 12 million cylinders circulating the local market are already substandard and unsafe while another three million should be requalified.

Of the almost 35,000 cylinders inspected by the energy department from 2004 to May 2009, almost 17,000 or 49 percent were defective. On the other hand, of the more than 4,000 LPG establishments inspected by the agency during the same period, almost 3,000 violated existing laws.

Artificial shortage

A couple of month ago, the supply of LPG in the retail market tightened, causing shortages. Big LPG players blamed illegal LPG refillers as the culprit for causing an artificial shortage, pointing out that these refillers chose to hoard since importers and refiners were refusing to supply them with bulk LPG.

It seems that the big players were trying to clamp down on the illegal LPG refillers. Perhaps, these illegal refillers’ market share had been growing too fast, and the accredited refillers and dealers were feeling the effects of lower sales.

What can be concluded from this incident was that the artificial shortage was directly caused by the bulk LPG suppliers’ embargo against illegal refillers, and that the illegal refillers were merely reacting to a ban.

Proposed law

Responding to the lobby of the LPG big players, Congress has come up with a consolidated bill that seeks to establish a new regulatory framework for the safe operations of the LPG industry by defining additional powers for the energy department.

This will still go through the standard legislative mill, and it would be useless to speculate what the final version will be. At this early stage, however, it should be clear to our lawmakers that the objective is to strengthen enforcement of the law — or, as had been noted, determine clear accountability of law enforcement.

Under the current set-up, the trade industry is responsible for accreditation of cylinders while the energy department is held accountable for correct filling and re-filling. But both need the help of local government units and the police to run after those found to be in violation.

Safeguarding LPG consumers interests

Clearly, enforcement in both underfilled and substandard LPG tanks is a major problem. I hope a new law will not muddle the issue and become putty in the hands of LPG players who are simply after protecting their market share.

The public must be protected from dangerous as well as underfilled LPG tanks. But they must also be spared from “price gouging” and other monopolistic practices of the LPG “big players.”

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.