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 not clear whether they will be compensated by the government, it is expected that the firms will have no under recoveries, at least for the next 2-3 months.
“The general cut is borne by the OMCs. Only for Ujjwala customers, 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 in April 2023, there has been no under recovery on domestic cylinders so far.
A Government statement issued after the Cabinet decision on Tuesday said there are more than 31 crore 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 said on Tuesday that, effective August 30, the price of a 14.2 kg LPG cylinder will be reduced by ₹200 across India. In Delhi, for instance, the cost will drop to ₹903 from ₹1,103. However, the net reduction for Ujjawala customers will be ₹400, as there is already a subsidy of ₹200. The government has estimated ₹7,680 crore as Ujjawala subsidies for FY24.
The government has not given figures on the increase after the latest reduction. However, some reports suggest this could go up by ₹4,000 crore this fiscal. It has provided ₹180 crore for LPG Direct Benefit Transfer (DBT) in the budget, which means additional amounts 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 be making a profit on 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 ₹22,000 crore relief.
Besides, current propane prices at 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’s FOB prices also rose. For instance, prices, which were 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, which reflects in Indian prices with a month’s lag. In April 2023, prices were also cut by $165 a tonne. This basically reflects higher global supplies and a lack of demand.
However, Aramco has raised prices for August by $70 m-o-m to $470 a tonne, which will reflect in India’s FOB prices in September. Higher prices reflect optimism about rising demand for the festival season and winter heating. The downside could be lower demand from China’s petrochemicals sector.