Many liquefied petroleum gas (LPG, or cooking gas) consumers might have already exhausted their share of subsidy this year, so the next time they order a cylinder and if it is their seventh one, the distributor will charge them around Rs 750. What will help the dealer is a software that Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation are installing at his end.
Since the software might not be a sure mechanism to stop any diversion, the three oil marketing companies (OMCs) have alerted their sales officers and distributors to play sentinel to verify genuine households, matching them to genuine addresses. "We have instructed our distributors to be more vigilant and verify on the ground. Besides, we are asking people to surrender multiple connections voluntarily. Else, we will have to take the legal route," said an executive director, LPG, at an OMC.
Analysts said capping the number of subsidised LPG cylinders at six per consumer per annum would result in annual savings of Rs 14,000 crore. "But given the political compulsions, we learn the government is mulling raising the cap on subsidised cylinders to nine or 10 per consumer per annum. We estimate every increase by one in the number of subsidised cylinders raises under-recoveries by Rs 1,600 crore," said Ashutosh Bhardwaj and Vivek Sarin of Nirmal Bang Equities.
The market rate is still being worked out. "There is an issue of taxation. As of now, domestic gas is exempt from any tax. We are still discussing if value added tax will be applicable on domestic LPG," said a senior Hindustan Petroleum executive. A subsidised domestic LPG cylinder is priced at Rs 399 in Delhi; Rs 401 in Kolkata; Rs 423 in Mumbai and Rs 386.50 in Chennai. The market rate would mean customers could pay Rs 750-800 a cylinder, depending on applicable state taxes. OMCs said market prices would be in line with international rates.
Multiple connections in the name of existing customers or fake connections in the name and address of non-existent customers provide enough opportunity to draw subsidised cylinders and use these for other than domestic cooking. It is estimated a family of four persons uses eight or nine cylinders in a year. In the financial year 2012, total LPG consumers increased 13 per cent to 144 million from 126 million a year before, of which 41 per cent used either six or less cylinders in a year.
A transparency portal which helps these state-run companies crunch data on consumption trends of the subsidised fuel has so far helped them trace and block 4.1 million multiple LPG connections over the past year.
While the government move will lead to the saving on subsidy for a third of all LPG cylinders, two-thirds of the total would still be supplied at a subsidised rate. OMCs will benefit to the tune of Rs 5,300 crore. However, such dual pricing of domestic LPG cylinders will bring its own sets of challenges, requiring even closer monitoring systems to be instituted, so that there is no leakage within the domestic segment or to the commercial segment.
The special software and the transparency portal will aid in monitoring the number of cylinders taken by a customer. "With the capping of cylinders, the availability of subsidised cylinders on the ground at any point in time will be significantly lower, which will correspondingly bring down the diversion to some extent. However, other efforts in this regard will have to continue," said N Srikumar, executive director, branding and communication, at Indian Oil.
Of the LPG meant for domestic use, nearly 15 per cent gets diverted to the grey market. According to data available on IOC's website, LPG for household consumption is 89 per cent of its total offtake.