New Delhi: To end any abuse of the different prices for liquefied petroleum gas (LPG) cylinders, the Union government is working on establishing uniform pricing.
There are three price points for LPG cylinders: a subsidized price for domestic cooking gas, a market rate for domestic cooking gas, and a higher price for commercial LPG cylinders.
Each household is entitled to six subsidized cylinders a year—or nine, depending on the state—under the Union government’s new policy, after which the price will be determined based on market rates.
Mint reported on 15 September that the government’s decision to limit the supply of subsidized cooking gas will lead to dual pricing, and could increase the diversion of domestic gas cylinders for commercial use and contribute to the black market economy.
“There are different price points for LPG cylinders. We are trying to bring them down as different price points create situations for diversions,” said a senior petroleum ministry official, requesting anonymity.
The subsidized price for a domestic cooking gas cylinder in Delhi is Rs.410 and the market price is more than double that at Rs.894. The price of a commercial LPG cylinder is Rs.1,536.50 in Delhi.
Pulok Chatterjee, principal secretary to Prime Minister Manmohan Singh, in a meeting earlier this month said the government should explore the “possibility of having the cylinders sold at uniform price with the subsidy portion being credited directly to LPG consumers”, according to the minutes of the meeting, which Mint has reviewed.
The government is already grappling with the problem of subsidized domestic gas cylinders being diverted for commercial use such as at hotels and restaurants or for vehicles.
There are 140 million LPG connections in the country, of which 99.57% are for domestic use, comprising 14.2kg LPG cylinders, according to official data. There are a total of 9,422 LPG distributors in the country and the LPG customer population covers around 56% of the country’s total.
The government plans for a roll-out of cash transfers of subsidies directly to the bank accounts of beneficiaries as outlined in the Union budget for 2012-13, followed by restricting the cash subsidy to targeted customers. This mechanism was recommended by a task force headed by Nandan Nilekani, chairman of the Unique Identification Authority of India.
State-owned oil marketing companies (OMCs)—Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd—are compensated by the government for selling diesel, kerosene and cooking gas at fixed prices that are significantly lower than the cost of production. The losses of these companies continue to rise because they can’t sell petrol at market rates despite the government’s claim that they are free to fix prices.
“We compute gross under-recoveries on diesel, kerosene and LPG at Rs.1.54 tn (trillion) for FY2013E and Rs.1.44 tn for FY2014E versus Rs.1.39 tn of gross under-recoveries in FY2012 assuming (1) crude oil (dated Brent) price of US$110/bbl and (2) exchange rate of Rs.55/US$,” Kotak Institutional Equities wrote in a report dated 27 September.
Together, these OMCs lost Rs.47,000 crore in the first quarter of this fiscal from selling diesel, kerosene and domestic LPG cylinders below cost to keep inflationary pressures under check. The total loss from selling fuels below cost last fiscal was Rs.1.44 trillion. India’s petroleum ministry expects the under-recovery for 2012-13 to be around Rs.1.67 trillion.