RAA: Consumers of Liquefied Petroleum Gas (LPG) around the country were over charged by the three distributors through collection of loading and unloading, home delivery, and depreciation cost in pricing of LPG, and depreciation charged without disposing any cylinder.

This is one of the findings of the special audit report on import and distribution of LPG and kerosene (SKO) conducted and released this month by the Royal Audit Authority (RAA).

Auditors found that over the last 15 years, between 1999 and 2014, the distributors- Bhutan Oil Distributors/Bhutan Oil Corporation (BOD/BOC), Druk Petroleum Corporation Limited (DPCL) and Damchen Petroleum Distributors (DPD) collected loading and unloading cost of LPG cylinders worth Nu 29.11 million (M) from the consumers.

It was charged to the consumers at the rate of Nu 4 a refill from 1999 to 2000 and Nu 5 a refill from 2001 onwards. For each LPG cylinder, the distributer charged more than Nu 75.

“It transpired from the response of the principal supplier, Indian Oil Corporation Limited (IOCL) that such costs were fixed through public tenders and directly paid to the transporters,” the special report, which was distributed to the members of National Council (NC) on May 14 stated.  “Therefore, under such arrangement, it does not justify charging loading and unloading cost to the consumers in Bhutan.”

The memorandum of understanding (MoU) signed between Ministry of Economic Affairs (MoEA) and IOCL clearly states that commercial terms like supply and payment will be decided mutually between the dealers and the IOCL through a separate agreement. However, the RAA was not provided the signed agreements.

The RAA also found that the distributors over the same period had collected Nu 112.11M as home delivery charges without actually providing the services. The dealer’s commission of additional 15 percent on LPG had always included establishment and home delivery charges.

Inadmissible charges of home delivery were imposed on consumers until October 22, 2014 when the Ministry of Petroleum and Natural Gas, India, had revised domestic LPG distributor’s commission. The Department of Trade (DoT) fixed the price without including the home delivery charges on November 5 bringing down the price of LPG cylinder from Nu 508 to Nu 491.

The report stated that the DoT is responsible for protecting citizens from marketplace fraud and unfair business practices but it failed to carry out their function with due diligence.

The MoEA responded to audit that prior to November 2014, the LPG dealer commission was declared on composite basis, which included all expenses of the distributors.

Over the same period, auditors also found that the distributors had collected depreciation cost on LPG cylinders amounting to Nu 74.16M. It charged Nu 10.17 a refill prior to 2009 and Nu 15 a refill since 2009. Besides, distributors had also claimed depreciation at the rate of 15 percent per annum as tax-deductible expenses when filing its returns to the department of revenue and customs. “Therefore, the depreciation charged to the consumers already recovered appears extension of additional benefits to the distributors and unfairly passed on to the consumers,” the report stated.

Auditors found that the distributors had 74,460 expired cylinders that were being circulated in the market, posing threat to lives and properties.

The standard life span of an LPG cylinder is 10 years and the expiry dates of cylinders were found written on every LPG cylinder in a code.

A three digit code shows the expiry which starts with letter A, B, C and D showing the 1st, 2nd, 3rd and 4th quarter of the year respectively, followed by two numbers indicating the year of expiry.  For instance, the expiry code B14 would mean it expires in the second quarter of 2014. Similarly D15 would mean the cylinder could be used until the fourth quarter of 2015.

On physical verification of LPG cylinders, the RAA noted expired cylinders in stock. Of the 74,460 expired cylinders, 72,260 were found in BOD/BOC, 1,200 in DPCL and 1,000 in DPD.

As per the international best practices, cylinders must be inspected and re-qualified at certain interval. The report also stated that the DoT as regulatory authority should ensure that expired cylinders are removed from circulation immediately or re-qualify and sensitise consumers on the gravity of threat involved in using expired cylinders.

The MoEA responded that the cylinders at the time of refilling at the bottling plants under-go automatic tensile strength tests. The IOCL sated that as per petroleum and explosive safety organisation, cylinders are to be tested after 10 years from date of manufacturing and once every five years.

As of November 30, 2014, there were 203,364 cylinders in circulation, 181,435 cylinders issued to public and 21,929 cylinders with distributors. There had been an increase in import of LPG from 2008 to 2012 and decrease in 2013.

Bhutan is granted subsidy on the import of domestic LPG and SKO by the GoI for a fixed allocated quota. The LPG quota was last revised in 2008 from 500 metric tonnes (MT) a month to 700 MT a month.

The 13th session of the National Council directed the RAA to examine the possibility of illegal deflection of LPG and SKO across the border and also to address the concerns expressed by the Indian government in 2013, pertaining to discrepancies that exists in what is reflected as LPG and SKO exports on the Indian side and what is reflected as LPG and SKO imported and distributed on the Bhutanese side.

The NC will discuss the report on June 5.

By Rinzin Wangchuk