Signaling its reluctance to decontrol LPG pricing, the National Democratic Alliance (NDA) government is providing a fixed LPG subsidy of Rs 18 per kg (or Rs 255.60 per 14.2 kg cylinder) for 2015-16 with the rider that subsidy be calibrated by state-run oil marketing companies (OMCs) each month to keep the consumer price unchanged during the entire fiscal.

The finance ministry on April 10 conveyed that it would provide Rs 21,140 crore towards the subsidy payout of Rs 18 per kg of LPG, down from Rs 40 per kg approved for 2014-15 that was to be borne equally by the government and national upstream oil companies.

However, with retail price kept unchanged, any surplus from the government-provided subsidy of Rs 255.60 per cylinder and the actual subsidy paid by the OMCs would be kept in a “buffer account” managed by the OMCs.

The accumulation, to be audited by the department of expenditure each quarter, would be used by the OMCs as “extra subsidy cushion” when their requirement of subsidy exceeds the amount provided by the government. “Whenever procurement price goes up, the OMCs will have to first offset the loss from the money in the buffer account,” said a ministry official.

The OMCs this month are expected to add Rs 400 crore in the buffer account as they require Rs 208 out of the Rs 255.60 per cylinder to keep the consumer price unchanged. In case the buffer also runs out due to international price spike in future, the government would dole out more subsidies to steady the retail price, said the official.

The NDA process is akin to the UPA government mechanism where consumers were allowed 12 subsidised cylinders without any limit on the loss to be borne by the OMCs. The actual subsidy payout was later changed to keep the price fixed at the level approved by the government.

Though the NDA government has fixed a subsidy cap and introduced a buffer account, it has left open the provision to review the subsidy payout in case the buffer account runs dry so that consumer prices remain fixed.

The Modi government on October 18, when it decontrolled diesel pricing, announced a re-launch of the Direct Benefit Transfer scheme for LPG (DBTL) as part of fuel reforms. “Under the modified DBTL scheme, the subsidy on a domestic subsidised cylinder will be fixed,” said an official statement then.

However, unlike last year, the government would be paying the entire subsidy thereby exempting upstream Oil & Natural Gas Corp, GAIL India and Oil India Ltd from any contribution towards the under-recovery on sale of LPG and kerosene.

“The subsidy of Rs 18 is admissible on cylinders of all sizes,” said a ministry official, clarifying that it would also be available for the smaller 5-kg cylinder but not for commercial 19-kg one.

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