Govt dithers on LPG hike while global prices soar

NEW DELHI, NOV 8: After all the build-up for its reforms plans, the Government appears to have developed cold feet over hike in LPG price...

NEW DELHI, NOV 8: After all the build-up for its reforms plans, the Government appears to have developed cold feet over hike in LPG prices, where the subsidy has crossed a mind-boggling Rs 4,000 crore. The last hike in prices of LPG cylinders was made in January, after which global prices have more than doubled global prices in fact have softened somewhat in October, else the effective subsidy would be 12 per cent higher.

The Government had first considered raising LPG prices in October along with the hike in diesel prices, before the government was sworn in, but this was turned down by then Petroleum minister V Ramamurthy. Petroleum ministry officials are once again brushing the dust off the proposal for tomorrow’s Cabinet meeting, though it is unclear yet as to whether any decision will be taken on the matter. Apart from LPG, the subsidy on kerosene sold through the PDS (and largely used to adulterate diesel) is currently over Rs 7,000 crore.

While this newspaper does not have the detailed and complex calculations of the LPG subsidy as are done by the Oil Co-ordination Committee (OCC), a simple arithmetical calculation shows the extent of the subsidy. Currently, LPG is sold to domestic or household consumers at Rs 8,732 per tonne while it is sold to commercial users at an import-parity price of Rs 17,300. Which means that the subsidy for the household consumer is Rs 8,568 per tonne, or Rs 121.66 per cylinder. Based on the total consumption of five million tonne of LPG, 95 per cent of which is used by the household sector, the effective subsidy given to the three crore LPG users in the country is a whopping Rs 4,070 crore.

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During January, when LPG prices were last revised upwards by 10-12 per cent (in addition, the government also cut certain prices paid to the LPG bottling companies by Rs 10 per cylinder), global prices of butane and propane were ruling at around $130 per tonne. LPG is a mixture of butane and propane in the ratio of 55:45.

By June, butane prices rose to $148 per tonne in Saudi Arabia, and further to $183 in July and to $290 by September. Propane prices have also risen similarly. Both fell to around $260-270 in October.

In fact, after LPG prices were raised last January, the subsidy per cylinder was Rs 61 today, with butane and propane prices doubling, the subsidy has also doubled per cylinder. At that time, though, after the cut the subsidy per cylinder was 28 per cent — today it is close to 80 per cent.

Under the Cabinet-approved proposal of the United Front government, LPG subsidies were to be cut by a third each year for two years, after which a subsidy level of 15 per cent was to be maintained.

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This note was part of the schedule adopted by the government to dismantle the price controls in the oil sector, and to completely open it up by 2002. While the BJP-government stuck to this commitment on LPG last year when it cut the subsidy by 30 per cent, it has failed to do so this year. The government has, of course, failed to implement the promises on cutting kerosene subsidies — here, a price increase of around 30 per cent was to be made each year for two years.