GOVERNMENT FRAMES MECHANISM FOR OIL PSUs SHARING UNDER RECOVERIES ON LPG AND KEROSENE

PRESS NOTE

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The Public Distribution System (PDS) Kerosene and Domestic LPG are domestic fuels of mass consumption. PDS kerosene is largely consumed by the economically vulnerable sections of the society and LPG is used not only for domestic cooking but also is being encouraged as a clean environment friendly auto fuel. There are about 7.1 crore LPG connections which cover about 38% of the population in the country.

PDS kerosene and domestic LPG continue to be subsidized products post Administered Price Mechanism (APM). The Government had earlier notified "The PDS Kerosene and Domestic LPG Subsidy Scheme, 2002" on 28^th January 2003 for administering post APM subsidies on these products. The Oil Marketing Companies (OMCs) could vary retail selling prices keeping in view the international prices after taking into account the rate of subsidy.

The issue of post APM pricing of PDS kerosene and Domestic LPG was re-examined by the Government and it was decided on 11.09.2003 that OMCs i.e. IOC including IBP, BPC and HPC will not increase the selling prices of these products during 2003-04. The resultant under-recoveries of approximately Rs. 106 per cylinder of LPG and Rs. 3 per litre of PDS kerosene amounting to approximately Rs. 8200 crore for 2003-04 by OMCs would be absorbed/shared amongst the oil companies during the current year. The amount of actual under recoveries would, however, depend on international prices of these products, growth in domestic production, taxation structure and other related factors.

Government has considered the matter and decided that the following broad mechanism for sharing these under recoveries amongst the public sector oil and gas companies under the administrative control of this Ministry during 2003-04:

1. OMCs would strive to make up for about 1/3^rd of the projected under recoveries by cross-subsidization through other retail products.
2. The balance under recoveries of OMCs would be equally shared amongst OMCs and upstream sector. The Government considers this as an equitable sharing of the subsidy burden between the two sectors.
3. Considering that Oil India Ltd. is a relatively smaller company, with its operations concentrated in North East Region, it is exempted from sharing the under recoveries.
4. Within the allocated sharing of burden of upstream sector companies, the contribution of ONGC and GAIL would be broadly in the ratio of each company’s PAT (profit after tax) during 2002-03.
5. The contribution from ONGC and GAIL which comes to approximately Rs 2400 crore would come in terms of appropriate discounts on the prices of crude oil, LPG and Kerosene supplied by them to different OMCs. On the average ONGC/GAIL would allow a discount of $ 2.35/bbl on crude oil and 20% in LPG and kerosene prices, determined on the import parity basis.
6. The revenue of State Governments in terms of royalty of crude oil will not be affected.

Petroleum Policy and Analysis Cell (PPAC) under the Ministry of Petroleum & Natural Gas would issue detailed guidelines in this regard.