Sop on kerosene to end in 3 years

By: and |
New Delhi | Published: July 24, 2015 1:28:18 AM

To be largely powered by rural electrification

Kerosene sopAn already evident decline in kerosene use by households, the sources said, would accelerate with the progress of the rural electrification programme. (Reuters)

After decontrol of petrol and diesel, the government has chalked out a plan to usher in market-determined pricing for kerosene over the the next two to three years. Given the perception of kerosene as the poor man’s fuel and its actual use for lighting by rural households, the stage for the deregulation would be set by achieving the goal of 24-hour electricity supply to all rural households under the Rs 44,000-crore Deendayal Upadhyaya Gram Jyoti Yojana by the end of FY17, government sources told FE.

An already evident decline in kerosene use by households, the sources said, would accelerate with the progress of the rural electrification programme. Simultaneously, the savings in LPG subsidy expenditure, facilitated by the direct benefit transfer (DBT) scheme, would enable the government to get more rural households shift to the cleaner fuel, without having to spend more.

The more efficient targeting of subsidy under the DBT-LPG scheme led to savings of Rs 12,700 crore in FY15 and the savings this year is expected to be around Rs 6,500 crore. Once the use of kerosene for lighting is discouraged, the fuel’s use will largely be restricted to industrial and commercial uses. The decontrol would also help check adulteration of diesel with cheaper kerosene. The price differential between the two fuels is currently Rs 33-35 per litre or, to put it differently, kerosene price is just 30% that of diesel.

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The under-recovery on kerosene (incurred by oil marketing companies) for selling at state-set prices is expected to be Rs 16,000 crore in FY16; two-third of this will be offset by the budgetary subsidy and the balance by the upstream oil companies by discounting crude prices.

Since the subdued crude prices and decontrol of petrol (in June 2010) and diesel (completed in October 2014) reduced the under-recoveries in recent years, the share of subsidy on kerosene in total under-recoveries has risen in recent years even as the absolute amounts have fallen. Of the estimated under-recoveries on fuel sales of Rs 35,000 crore for the current fiscal, the share of LPG would be Rs 19,000 crore.

In a recent article, chief economic adviser in the finance ministry Arvind Subramanian said as much as 41% of subsidised kerosene is “unaccounted for” and is probably lost to the black market. The Petroleum Planning & Analysis Cell in the ministry has recently estimated that kerosene diversion is of the order of 51%. In FY15, Uttar Pradesh was allocated maximum volumes of subsidised kerosene, followed by West Bengal, Gujarat, Maharashtra, Bihar and Madhya Pradesh. In FY15, the total subsidised allocated volumes of kerosene stood at 6,985 thousand metric tonnes (TMT); the northern region got 1,890 TMT, eastern region 2,263 TMT, western region 1,693.5 TMT and southern region 1,138.5 TMT.

Petroleum minister Dharmendra Pradhan in a recent interview to FE said his government 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.

The budgetary support to the Deendayal Upadhyaya Gram Jyoti Yojana, launched in December 2014, is estimated to be Rs 33, 453 crore over two years. Additionally, Rs 10,000 crore would be mobilised via debt and from contribution by power distribution companies.

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