There are reports that kerosene is diverted to the black market. We would work with the states to stop this diversion, said Petroleum minister Dharmendra Pradhan.
Enthused by the success of the direct transfer of LPG subsidy to beneficiary bank accounts that helped weed out around 4 crore bogus household gas connections, the government is now going to extend the model to disburse the subsidy on kerosene. “We are in talks with state governments to launch the targeted subsidy mechanism for kerosene,” petroleum minister Dharmendra Pradhan told FE in an interview.
PSU oil marketing firms incurred a loss (under-recovery) of R24,799 crore in FY15 on selling kerosene at below cost against R30,574 crore in FY14. They currently sell kerosene at a loss of R16.32 a litre.
The minister, however, added that the using the direct benefit transfer (DBT) scheme for kerosene subsidy might involve some problems that the LPG project hasn’t faced.
“We could successfully roll out DBT-LPG because the distribution of domestic cooking gas is done by public-sector oil companies. Kerosene distribution, on the other hand, is the primary responsibility of state governments,” Pradhan said. He added that the government’s policy is that the needy must get subsidised kerosene. “There are reports that kerosene is diverted to the black market. We would work with the states to stop this diversion.”
Indicating that some subsidised kerosene alottees may not deserve the dole, he said, “Today, kerosene is apparently being allotted to well-to-do families too. This should be discussed (with states) and a mechanism should be rolled out (to ensure that the subsidy is better targeted).”
Commenting on the pricing of domestic gas, the minister said: “The price has been aligned to market dynamics. And the investors are happy. I don’t think anybody has complaints with the gas price mechanism. Everybody is satisfied and enthusiastic to increase their investment and production.”
The price of domestic natural gas, which was hiked in November last year by the NDA government, was reduced by 7.6% to $5.18 per million British thermal units (mBtu) effective April 1, as the relevant global benchmark prices remained subdued in the second half of 2014. The Cabinet on October 18 last year approved the new gas price formula, after tweaking the Rangarajan formula approved by the UPA government in June 2013. The price is to be revised every six months.
“We have successfully stopped diversion of LPG subsidy. When we came to power, there were 17 crore LPG consumers on paper. After launch of DBTL, as on today, it has come down to 13 crore,” Pradhan said. “Those who need, they should get subsidy. That is why we have launched campaign ‘give it up’ to encourage the well-to-do to forgo the subsidy. Reduction in consumption of LPG would yield dividends in terms of savings of foreign exchange and this could be used for development expenditure.”
According to data reviewed by the petroleum ministry, the growth in consumption of subsidised domestic cooking gas was around 3% in March this year, compared with 6% in the previous month. In contrast, there was a growth of around 28% in commercial LPG use in March 2015 and 27% in February. Launched by the UPA government, the DBT-LPG scheme was relaunched by the NDA government in 54 districts on November 15, 2014. The scheme was rolled out to the entire country on January 1, 2015.