Prime Minister Narendra Modi’s office has fixed the subsidy on domestic LPG at Rs 568 per cylinder —  to be borne equally by the government and national oil companies (NOCs) —  setting the stage for deregulating the pricing of domestic cooking gas.

However, the Prime Minister’s Office on October 22 also decided to keep the consumer price unchanged during the current fiscal year ending March 2015 after which the deliverable price could vary with the change in international price.

At the meeting, the PMO fixed the subsidy for domestic LPG at Rs 40 per kg (or Rs 568 per cylinder of 14.2 kg) to be shared between government and public sector upstream oil companies Oil & Natural Gas Corp, GAIL India and Oil India Ltd.

“Retail selling price of LPG would remain fixed up to March 2015 and any variations in procurement price of LPG by oil marketing companies (OMCs) will be adjusted through fixed compensation of Rs 20 per kg by the government and the balance Rs 20 per kg by upstream national oil companies,” says the proposal for the Cabinet Committee on Political Affairs (CCPA).

“Difference in subsidy admissible from NOCs and actual subsidy will be used when actual requirement of subsidy exceeds Rs 568 per cylinder…

The position of actual subsidy requirement would be reviewed in March 2015,” it adds.

Under the system put in place by the UPA government, consumers were allowed 12 subsidised cylinders without any limit on how much loss would be borne by the OMCs.

The actual subsidy thus paid for consumers used to change in order to keep the price fixed at the level approved by the CCPA.

The CCPA proposal prepared by the petroleum ministry says that the PMO also decided that Rs 568 be transferred as the first time “permanent advance” to LPG consumers when the fixed subsidy scheme is launched in 15 districts from November 15 to cover the entire country by January 1, 2015.

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,” an official statement had said.

When contacted, petroleum minister Dharmendra Pradhan said any surplus to the OMCs would be kept in a pool account and would be set off against higher international prices in future.

The proposed fixed subsidy is higher than current under-recovery of Rs 416.35 per cylinder but prices were expected to harden in the winter months of November to February, he added. The CCPA note on finalising the burden sharing mechanism for under-recovery of Rs 92,251 crores on sale of LPG, diesel and kerosene also proposes that:

Subsidy burden of Rs 10,821 crores on diesel until October 18 and Rs 28,382 crores on kerosene for fiscal 2014-15 be shared equally between the government and the upstream NOCs with the ratio of sharing between the NOCs to be separately decided by the petroleum ministry.

Oil Industry Development cess of Rs 10,500 crore paid by ONGC and OIL on crude oil production from nominated fields be considered a part of the ONGC and OIL’s burden share in fiscal 2104-15 since the collected cess was not being transferred for the intended purpose of development of the oil industry.

DEREGULATION SOON

* The PMO fixed the subsidy for domestic LPG at Rs 40 per kg to be shared between government and public sector upstream oil firms

* After March, the deliverable price could vary with the change in international prices