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LPG industry gloom over new excise

Pump it up: Liquid petroleum gas will be hit with a fuel excise from December 1.

Double whammy of fuel tax and rebate cuts sets up LPG suppliers for a struggle

5 Aug 2011

LIQUID petroleum gas (LPG) will be hit with a fuel excise from December 1, raising the cost of motoring for 700,000 Australian drivers and taking some of the shine off launch programs for new-generation LPG cars from local motor manufacturers Holden and Ford.

The autogas tax – which will also apply to compressed natural gas and liquid natural gas vehicle fuels – will be phased in over four years, starting at 2.5 cents a litre and rising in increments each July to 12.5 cents a litre by 2015.

While the excise is still well short of the 38.1-cents-a-litre slug paid by petrol and diesel buyers, it comes on top of the government’s slashing of LPG installation rebates, which are not only being phased out by 2013 but capped at 25,000 units a year until then.

To rub salt into the LPG industry’s wounds, E85 ethanol – which had been earmarked for the same excise – was given a reprieve by the government after lobbying by rural independent MPs who then helped the gas excise bill’s passage through parliament.

The moves were slammed by LPG Australia chief executive officer Michael Carmody, who predicted the industry would continue to decline because of the negative messages coming from the government towards alternative fuels.

He said three Victorian LPG supplier companies – including Alternative Fuel Innovations – had already gone into receivership, and more could follow.

“I think it (the LPG industry) will continue to decline, and the reason it will decline is the market is just receiving this negative messaging,” he said.

80 center imageLeft: LPG Australia CEO Michael Carmody. Below: Ford Falcon EcoLPi.

“The market only has to get so much negative messaging out there and it stops buying the product, and it doesn’t matter if it is gas or ice-cream.

“When they (the public) start turning away from the product, then the installation and equipment supplier business, which of course has to fund all this technology and the new developments they are trying to bring in, can’t get the capital funding from the banks to continue to drive their business.

“We have seen that already in Victoria, where three companies have moved into receivership.” Mr Carmody said the federal government’s decision to introduce the excise was about politics, not policy.

He said the government had no policy on transport fuels, nor any policy on gaseous fuels.

“We have no energy White Paper, we have no alternative fuels transport policy, no gaseous transport fuels policy – we have nothing,” he said.

“So when industries take their case up to government, all you are doing is sitting down with treasury officials and determining how much you will pay. It’s a terrible state of affairs.” Mr Carmody predicted a “disaster” in the bureaucratic operation of the cap on LPG installation rebates, as no mechanism had been put in place to judge when 25,000 units had been reached in any given year.

He said the rebate cap also covered factory-fitted LPG vehicles such as Ford’s just-released Falcon EcoLPi and Holden’s forthcoming LPG Commodore upgrade.

“It is beyond a disaster,” he said. “We have been to AusIndustry, who manage the rebate scheme, and we have said to them ‘how do you know how many conversions are taking place?’.

“If I get my car converted in May next year, how does the installer know what’s left? “Of course, there is no answer to it all. It’s ‘well, you know, we are going to have a look at that’ and various bits and pieces. It is going to be an absolute disaster for the installation business.” Mr Carmody said the federal government needed to make up its mind if it wanted people to move to cleaner alternative fuels such as LPG, which he said emitted up to 13 per cent less CO2 than petrol.

“As we tried to point out to the government on a thousand and one occasions, the government needs to make a fundamental decision – it either wants to transition people away from petrol and diesel and on to alternative fuels or it doesn’t,” he said.

“The only reason people move from ULP (unleaded petrol) to LPG is economics. People do it to save money. And so what you have got to try to do is incentivise them to save that money to get folks off petrol and crude oil and on to something that is a little cleaner and a little cheaper.

“The more they decrease the differential between petrol and LPG – and they are going to do it by a further 12.5 cents – the less people are going to come across.” Mr Carmody was also critical of the lack of support for LPG Australia from LPG users – including the taxi industry – in its campaign against the LPG excise that was first mooted by the Howard government and then adopted by the Gillard government.

“At the end of the day, the only thing the politicians are going to listen to these days is the constituent,” he said.

“They don’t really give a stuff about what industry has go to say the only person who will turn their head is the voter.

“Try as we might, we could not marshal the LPG consumers in terms of getting enough smoke, anger and firepower into the exercise to get this going.

“Even the taxi industry kept a very, very low-key response to the exercise.” Ford Australia, which is depending on its new liquid-injection EcoLPi Falcon to regain sales after a months-long drought of LPG-propelled cars in its line-up, says the new vehicle will still be competitive, despite the excise and winding down of rebates.

“The phased introduction of the excise tax on LPG has been flagged by government for many years,” a Ford Australia spokesman told GoAuto.

“The tax rate has been established at a rate way below that of petrol in recognition of the energy content and environmental benefits of LPG.

“Despite the new excise pricing mechanism, Ford believes LPG will continue to be very competitively priced.

“We also believe that our just-launched Falcon EcoLPi will continue to represent an outstanding performance, operating cost and environmental story under the new tax arrangements.

“It is a cleaner fuel that has appeal to many fleet and private customers.” Holden’s direct response in the form of an upgraded LPG Commodore is not due in the showrooms until next year, but GoAuto expects the company to start ramping up promotion of the vehicle before then so that Ford does not have a free run in the interim.

The new excise on natural gas – which applies only to motor vehicles – will be counted in cents per kilogram, starting at 5.22 cents on December 1 and rising to 26.13 cents on July 1, 2015.

Although few private motorists will be hit by this excise, major bus lines running natural gas in several capital cities face a big rise in fuel bills between now and 2015.

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