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Towards dedieselizesd economy  

Kicking the diesel habit

(Courtesy: Mint, New Delhi, August 23, 2011)

Early this month, the Indian Railways signed a memorandum of understanding with IndianOil to explore the possibility of replacing diesel and instead using liquefied natural gas (LNG) in its workshops and locomotives in a phased manner.

This is a significant move in the right direction for an economy trying to “dedieselize” itself. India imports close to 80% of the crude oil, from which diesel is derived, that it requires. Sure, LNG is also an imported fuel, but broadly speaking in “calorie” terms, it is cheaper than crude oil. No doubt that gap has been narrowing over the years, but the economic rationale to switch is unmistakable.

In India, this rationale is mildly blunted since diesel is sold at subsidized rates. Besides, the penetration of LNG has been dismal thus far, with only two companies operating LNG-receiving terminals. However, this trend is changing. As many as

four terminals are in the works on the eastcoast—IOC is one of the aspirants. To strike a deal with the railways is a good move as it seals up an “anchor” customer: The rail monopoly is the single largest consumer of diesel, accounting for around 6% of total consumption in the country. If the railways can embrace LNG outside the precincts of the workshops, as a locomotive fuel that will significantly reduce the subsidy burden borne by the government and public sector oil companies. The total subsidy burden on mass consumption petroleum products, including diesel, liquefied petroleum gas and kerosene, is as high as 1.5% of the gross domestic product, with diesel accounting for a major portion of this. This is all the more relevant given the dim prospects of the government raising the price of diesel over the remaining three years of its term.

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