New Delhi: Free-market diesel price in 24 mths; only LPG, kerosene to get subsidy

The UPA government is going the whole hog on its plan to move towards fully market-determined pricing of diesel, which accounts for 60% of this year’s estimated fuel subsidy bill of R1.7 lakh crore. “In 24 months from now, everyone will pay market price for diesel, and we will have fuel subsidies only on LPG and kerosene,” a determined oil minister Veerappa Moily told FE. This is the first time the minister has said this categorically, setting at rest speculation after last week’s government directive to oil marketing companies (OMCs) on diesel pricing on whether it meant deregulation and abrogation of diesel subsidy.

The Delhi Cabinet on Monday decided to increase the number of subsidised LPG cylinders for the beneficiaries of the kerosene-free scheme from nine to twelve in a financial year.

At the meeting chaired by Chief Minister Sheila Dikshit, it was stated that since the Centre has decided to increase the limit of subsidised cylinders from six to nine across the country for a financial year, Delhi on its part would continue with the additional subsidy it had announced earlier on three cylinders for those covered under the kerosene-free Delhi scheme, which was launched in the Capital last year.

Govt has permitted oil companies to increase diesel price by 45 paise a month

Bulk consumers will have to pay market price, to be revised every fortnight; Consumers would get nine subsidised cooking gas cylinders a year, instead of six at present. Unwilling to announce a hike in diesel price, the government on Thursday allowed oil marketing companies to increase the price in small doses periodically and bring it in line with global rates. To begin with, an immediate increase of 45 paise a litre was announced for sales through retail outlets, while bulk consumers, which add Rs 12,907 crore to the subsidy burden, would have to pay market price, to be revised every fortnight.

The cabinet meeting on Thursday is set to consider the petroleum ministry’s proposals to increase diesel, cooking gas and kerosene prices, a move the government aims to partly offset by raising the ceiling on the number of subsidized LPG cylinders.

If approved, the new prices will take effect from midnight Thursday. “The agenda on petroleum product price rise and the cap on LPG cylinders will be handed out to ministers at tomorrow’s cabinet meeting,” sources said.

In a bid to neutralise political opposition to planned fuel price hikes, the government is considering a two-step process: First, allow up to 12 subsidised domestic gas cylinders per year from the currently proposed nine and later, raise prices of LPG and diesel in a phased manner.

Sources told FE that a compromise is being worked out after some Cabinet ministers termed the six-cylinder cap and the proposed fuel price hike as “politically suicidal”. A section of the ruling coalition too feels these steps could cost the UPA at the hustings.

Delhi set to become first kerosene-free state

With the distribution of filled liquefied petroleum gas (LPG) cylinders in the Rajinder Nagar assembly constituency, the government has begun the process of making Delhi a kerosene-free state. The constituency is represented by the Transport Minister, Ramakant Goswami. A few years ago, the government had announced that it would distribute gas cylinders and stoves free of charge to the BPL cardholders to make the Capital kerosene-free.

Pressing ahead with the Kelkar Committee recommendations and grappling with massive under-recoveries, the Petroleum and Natural Gas Ministry has initiated a Cabinet note to raise the cap on subsidised LPG supply from six to nine cylinders a household a year, and increase diesel, LPG and kerosene prices in phases.

As the Finance Ministry refused to share the subsidy burden of the oil marketing companies, the Petroleum Ministry is pressing for a phased price increase to cut the subsidy down to the bare minimum during the next two-four years.

The oil ministry has proposed a hike of R3-4.50 per litre in diesel price and R100 per cylinder in LPG rates, along with raising the number of subsidised cooking gas cylinders for households to nine a year from the current cap of six.

The ministry has moved a note for consideration of the Cabinet, proposing options for meeting a record R160,000-crore deficit arising from selling auto and cooking fuels below their cost.

Analysts say any increase in diesel and kerosene prices will be positive for market sentiment.