LPG subsidy fixed at Rs 568, price to change after March 2015

Prime Minister Narendra Modi’s office has fixed the subsidy on domestic LPG at Rs 568 per cylinder — to be borne equally by the government and national oil companies (NOCs) — setting the stage for deregulating the pricing of domestic cooking gas.

However, the Prime Minister’s Office on October 22 also decided to keep the consumer price unchanged during the current fiscal year ending March 2015, after which the deliverable price could vary with the change in international price.

At the meeting, the PMO fixed the subsidy for domestic LPG at Rs 40 per kg (or Rs 568 per cylinder of 14.2 kg) to be shared between government and public sector upstream oil companies Oil & Natural Gas Corp, GAIL India and Oil India Ltd.

“Retail selling price of LPG would remain fixed up to March 2015 and any variations in procurement price of LPG by oil marketing companies (OMCs) will be adjusted through fixed compensation of Rs 20 per kg by the government and the balance Rs 20 per kg by upstream national oil companies,” says the proposal for the Cabinet Committee on Political Affairs (CCPA).

“Difference in subsidy admissible from NOCs and actual subsidy will be used when actual requirement of subsidy exceeds Rs 568 per cylinder… The position of actual subsidy requirement would be reviewed in March 2015,” it adds.

Under the system put in place by the UPA government, consumers were allowed 12 subsidised cylinders without any limit on how much loss would be borne by the OMCs.

The actual subsidy thus paid for consumers used to change in order to keep the price fixed at the level approved by the CCPA.

The CCPA proposal prepared by the petroleum ministry says that the PMO also decided that Rs 568 be transferred as the first time “permanent advance” to LPG consumers when the fixed subsidy scheme is launched in 15 districts from November 15 to cover the entire country by January 1, 2015.

The Modi government on October 18, when it decontrolled diesel pricing, announced a re-launch of the Direct Benefit Transfer scheme for LPG (DBTL) as part of fuel reforms. “Under the modified DBTL scheme, the subsidy on a domestic subsidised cylinder will be fixed,” an official statement had said.

When contacted, petroleum minister Dharmendra Pradhan said any surplus to the OMCs would be kept in a pool account and would be set off against higher international prices in future.

The proposed fixed subsidy is higher than current under-recovery of Rs 416.35 per cylinder but prices were expected to harden in the winter months of November to February, he added. The CCPA note on finalising the burden sharing mechanism for under-recovery of Rs 92,251 crores on sale of LPG, diesel and kerosene also proposes that:

a) Subsidy burden of Rs 10,821 crores on diesel until October 18 and Rs 28,382 crores on kerosene for fiscal 2014-15 be shared equally between the government and the upstream NOCs with the ratio of sharing between the NOCs to be separately decided by the petroleum ministry.

b)Oil Industry Development cess of Rs 10,500 crore paid by ONGC and OIL on crude oil production from nominated fields be considered a part of the ONGC and OIL’s burden share in fiscal 2104-15 since the collected cess was not being transferred for the intended purpose of development of the oil industry.

NEW SUBSIDY REGIME IN NEW YEAR - NDA does a UPA: LPG Sop will go Directly to Acs

All consumers will have to buy cooking gas at market rates from New Year’s Day as the government has issued firm instructions that the subsidy will be transferred directly to bank accounts as it seeks to end illicit supplies to restaurants, cars and factories, besides slashing the subsidy bill and boosting private investment.

After recently eliminating the diesel subsidy, which had ballooned to Rs 62,837 crore, Oil Minister Dharmendra Pradhan has now ordered state oil companies to ensure that the scheme – which is being launched as a pilot for 2.33 crore customers in 54 districts – is smoothly expanded to the entire country by January 1, 2015. Some oil industry executives had expressed doubts about the successful rollout of the scheme to the entire country in barely six weeks of the launch in 54 districts, after the UPA government botched up the programme after expanding it to 291 districts just before the general election. It had been forced to withdraw the programme after Congress leaders said it was costing them votes.

The oil ministry is, however, confident about success this time around. “The old DBTL (direct benefit transfer of LPG) scheme failed because Aadhaar number was made mandatory to avail subsidy. We have modified the scheme so that the consumer will not face any difficulty in getting subsidised cylinders,“ Pradhan said.

Under the modified DBTL, a consumer will be eligible for subsidised LPG cylinders even without the Aadhaar number, Pradhan said. Consumers without the unique ID will also receive cash directly in their bank accounts. They can switch to Aadhaar-based cash transfers once they have been enrolled by informing dealers and banks.

Customers have six months to tell LPG dealers their bank account numbers without losing the subsidy amount.

While subsidised cylinders will be delivered to them in the first three months, they will have to buy at market rates after that. The subsidy will be remitted to their bank accounts within the next three months, officials said.

For the first subsidy payment, the money will be transferred to the bank account of consumers as soon as they make the first booking for a cylinder after joining the scheme, prior to delivery. This advance ensures that consumers have extra cash to pay for the first cylinder at market price. The permanent advance shall be notified for consumers now joining the scheme separately.

The move reflects the embrace of the direct benefits transfer principle introduced, albeit with limited success, by the UPA government. Aadhaar has meanwhile covered more than half the country’s population.

“The UIDAI (Unique Identification Authority of India) has, till date, issued over 70.7 crore Aadhaar numbers,” the government said in a release. “Nine states and UTs including Andhra Pradesh, Kerala, Delhi and Himachal Pradesh have crossed 90% Aadhaar coverage, while a further seven states and UTs have Aadhaar coverage of between 70% and 90%.” In the 54 districts in which the pilot is being launched, 95% of consumers already have Aadhaar numbers. The new scheme ensures that consumers receive SMS alerts on their registered mobile numbers at every stage of enrollment in the scheme.

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