State-run Oil Marketing Companies (OMCs) will bear the cut in the cost price of LPG for all non-Ujjawala consumers, a senior Government official clarified on Wednesday. While it is unclear whether the government will compensate them, the firms are expected to have no under-recoveries, at least for the next 2-3 months.
“The general cut is borne by the OMCs. Only for Ujjwala customers, the subsidy is borne by the government,” a senior government official told businessline. Meanwhile, officials from PSU OMCs said that as international FOB prices of liquefied petroleum gas (LPG) started softening from April 2023, there is no under recovery on domestic cylinders so far.
A Government statement issued after the Cabinet decision on Tuesday said there are more than 31 crores domestic LPG consumers in the country, including 9.6 crore PMUY beneficiary families. However, the total number of connections is 33 crore, which suggests some consumers have more than one connection.
Budget Math
The government on Tuesday said effective August 30, the price of a 14.2 kg LPG cylinder will be reduced by Rs 200 across India. In Delhi, for instance, the cost will drop to Rs 903 from Rs 1,103. However, the net reduction for Ujjawala customers will be Rs 400 as there is already a subsidy of Rs 200. The government has estimated Rs 7,360 crore as Ujjawala subsidy for FY24.
The government still needs to give figures for an increase after the latest reduction. However, some reports suggest this could go by Rs 4,000 crore this fiscal. It has provided Rs 180 crore for LPG Direct Benefit Transfer (DBT) in the budget, which means an additional amount can be provided in Supplementary Demands for Grants to be presented during Parliament’s winter session.
Market dynamics
Petroleum Planning & Analysis Cell (PPAC) data shows that international FOB (Free On Board) prices of LPG have been inching south since April 2023, reflecting softening global prices, which indicates that OMCs could profit from selling LPG cylinders.
Sources said there is likely to be no under recoveries with OMCs, at present, as losses for FY22 and FY23 were covered by the Rs 22,000 crore relief.
Besides, current propane prices of Saudi Aramco have come down from high levels between 2020 and 2022. International LPG prices between April 2020 and April 2022 rose by around 300 per cent. For instance, prices rose from $236 per tonne in April 2020 to $750 in June 2022, which further hit $790 in February 2023.
In tandem, India FOB prices also rose. For instance, prices at $790 a tonne in February have come down by more than 50 per cent to $385 in July 2023. Aramco slashed propane prices by $105 a tonne to $450 for June, reflected in Indian prices with a month lag. In April 2023, prices were cut by $165 a tonne. This is reflected in higher global supplies and lack of demand.
However, Aramco has raised prices for August by $70 M-o-M to $470 a tonne, which will be reflected in India FOB prices in September. Higher prices reflect optimism on rising demand for festival season and winter heating. The downside could be lower demand from China’s petrochemicals sector.