Govt to cap kerosene subsidy at Rs12 per litre; oil firms to share more burden

13 Jul 2015


The government has decided to cap the subsidy payout on kerosene at Rs12 per litre and leave the extra burden of Rs5,000-6,000 crore to state-run upstream oil firms like ONGC, even as the retail prices will be maintained at the current level.

Subsidised kerosene, distributed through public distribution system (PDS), is currently priced at Rs14.96 per litre against the actual cost of Rs33.47.

This entails an under-recovery of Rs18.51 per litre, which is shared by the government and state-run oil exploration companies like ONGC and Oil India Ltd.

Under the new formula, the government will bear Rs12 of the under-recovery and leave the remaining Rs6.51 to state-run oil exploration companies.

The new formula for meeting this under-recovery has now been finalised, a senior finance ministry official said.

''The finance ministry will pay Rs12 per litre in cash to state-owned fuel retailers from the Budget and any unbridged gap between the retail selling price and the cost of production will be borne by upstream companies like ONGC,'' he said.

At current prices, the upstream companies will have to bear Rs 6.51 per litre or Rs 5,000-6,000 crore for the full year.

The subsidy sharing on LPGH will, however, remain unchanged. Domestic consumers are currently eligible for as many as 12 LPG cylinders of 14.2-kg per household at a subsidised rate of Rs417.82. There is an under-recovery of Rs198.68 per cylinder, which the government will bear entirely.

''Since the government has launched the direct benefit transfer (DBT) for LPG wherein cash subsidy is transferred from the exchequer directly to cooking gas consumers, the finance ministry has decided to bear it in entirely,'' he said.

LPG consumers get subsidy equivalent to the under-recovery directly in their bank accounts so that they can purchase a 14.2-kg bottle at market price of Rs 608.50.

The official said the budget for 2015-16 has provided for Rs22,000 crore towards LPG subsidy and another Rs8,000 crore on kerosene.

''While provisioning for kerosene is sufficient, additional funds may have to be provided in supplementary demands for LPG,'' he added.

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