The Centre on Sunday defended the latest increase in domestic LPG prices, saying Indian households continue to pay among the lowest cooking gas rates globally despite a sharp 46 per cent rise in international benchmark prices triggered by disruptions in West Asia.
The clarification came a day after the price of a 14.2-kg domestic LPG cylinder was raised by Rs 29, taking the retail price in Delhi to Rs 942 from Rs 913.
Beneficiaries of the Pradhan Mantri Ujjwala Yojana (PMUY) will continue to pay an effective Rs 642 per cylinder after a subsidy of Rs 300 per refill on the first four refills annually.
The latest increase follows a Rs 60-per-cylinder hike announced on March 7, taking the cumulative increase in domestic LPG prices to Rs 89 per cylinder this year.
In a statement, the government said the cost of supplying a domestic LPG cylinder has climbed to over Rs 1,600 due to soaring global prices following the outbreak of conflict in West Asia and disruptions in the Strait of Hormuz, a critical shipping route for Gulf energy supplies.
India’s LPG import prices are linked to the Saudi Contract Price (CP), the global benchmark set by Saudi Aramco. According to the government, the benchmark has risen by around 46 per cent since February.
"India used to import 60 per cent of its LPG requirements, and the landed cost of that import tracks the Saudi Contract Price (CP) that Saudi Aramco sets at the start of each month. This is an external price over which the Indian consumer has no control," the government said.
The statement said the Saudi CP for LPG rose sharply after disruptions in West Asia.
"Expressed as the 50:50 propane-butane blend used for India's LPG, the Saudi CP for LPG stood at about USD 543 a tonne in February, before the disruption. Following the closure of the Strait of Hormuz in late February, the April contract price -- the first set after the disruption tightened Mideast Gulf exports -- rose to USD 775 a tonne, with propane at USD 750 and butane at USD 800, and has since edged up further to USD 790 a tonne in June."
The government maintained that despite the increase, cooking gas prices in India remain lower than those in neighbouring countries such as Pakistan, Nepal, Bangladesh and Sri Lanka, and significantly below prices in advanced economies including the United States, Australia and Canada.
"The prices of petroleum products in India are linked to the corresponding prices in the international market. The government, however, continues to modulate the effective price to the consumer for domestic LPG. Any household can buy as many cylinders as it needs at Rs 942," the statement said.
"A PMUY beneficiary will additionally receive the direct benefit transfer of Rs 300 a cylinder on the first four refills each year, broadly the average annual consumption of a typical Ujjwala household, about four refills a year -- and so pays an effective Rs 642 on those refills; this support is unchanged."
The government said even non-PMUY households pay substantially below the market-linked cost, with the import-linked cost of a domestic cylinder estimated at over Rs 1,600.
"What the household does not bear the brunt of is the several hundred rupees a cylinder which the government is bearing. Through a period of sharp international cost increases, that burden has been absorbed upstream rather than passed to the consumer," it said.
State-run oil marketing companies were estimated to be losing about Rs 703 on every LPG cylinder sold before the latest revision.
According to the government, cumulative under-recoveries on domestic LPG sales rose to around Rs 60,000 crore by the end of the previous financial year, compared to Rs 41,338 crore a year earlier. The Union Cabinet has approved Rs 30,000 crore in compensation to partly offset these losses.
"The under-recovery is separate from the subsidy: the gap between the international cost and the regulated retail price -- an estimated amount rising towards Rs 60,000 crore on domestic LPG in the last full year, up from Rs 41,338 crore the year before -- is borne by the public sector marketing companies and the exchequer, against which the Union Cabinet has approved Rs 30,000 crore in compensation; over and above this, Ujjwala consumers receive an additional Rs 300 per cylinder credited directly to their bank account, reaching more than 10.58 crore connections," the statement added.
The government also said India maintained uninterrupted LPG and petroleum supplies despite disruptions in the Strait of Hormuz, through which more than half of the country’s LPG imports are transported.
Domestic production was increased by over 60 per cent, imports diversified to countries including the United States, Canada and Algeria, and additional measures introduced to prevent supply disruptions and diversion of subsidised cylinders.
"The scale of this is visible in the fully market-priced commercial cylinder: the 19 kg cylinder used by hotels and restaurants sells in Delhi at Rs 3,113.50, about Rs 164 a kg, after five increases during the West Asia crisis. The domestic household, by contrast, pays about Rs 66 a kg after the revision," it said.
(With inputs from PTI)
