R.P Natekar GM (Treasury) BPCL SUBISDIES ON COOKING FUELS
Dec 28, 2015
R.P NatekarGM (Treasury) BPCL
SUBISDIES ON COOKING FUELS
Presentation outline
Why
How
How Much
Since When
Impact
Road Ahead
1
2
3
4
5
6
Subsidies : Since When
• Consumer pricing for Cooking Fuels – Subsidized since APM
• Continued even when other products were “Marked to Market”
• ‘PDS kerosene and Domestic LPG Subsidy Scheme 2002’
• Introduced in 2002
• Flat Rate of Subsidy
• Reducing every year
• Differential supposed to be “Passed On”
Subsidies : Why
• Socio Economic Purposes
• Used as fuel
• Kerosene for lighting purpose in Rural Area
• Cooking purpose in Urban Area
• LPG – fuel for most of the Urban Population
• Poor Masses
• Alternates could harm environment
Subsidies : How
• Subsidies made available through “Low Price Supplies”
• Kerosene
• Distributed through the Public Distribution System (PDS)
• Oil Companies – Wholesaler – Retailer – Customer
• Available only to “Card” holders
• Quantity constraint
• LPG
• Oil Companies – Distributor – Customer
• Available only to Registered Customers
• No Quality Constraints
SUBSIDIES : HOW MUCH
SUBSIDIES : HOW MUCH
Subsidies quantum
Government pays about Rs. 25 billion to oil companies towards subsides
Rest is borne by Upstream Companies, Government Bonds and Marketing Companies
2004-05
2005-06
2006-07 2007-08 2008-09 (Estd)
SKO 94.80 143.84 178.83 191.02 350.00
LPG 83.62 102.46 107.01 155.23 240.00
Year by year increasing in under recovery is effecting financial health of OMCs badly
Subsidies : iMPACT
• Heavy subsidy has resulted in
• Increase in adulteration along with Diesel
• Diversion for Commercial use
• Waste, leakage, inefficiency etc.
• National Council of Applied Economic Research (NCEAR) Study :
• 38.6% of Kerosene is diverted
• Non-household use at 18.1%
• Black market at 17.9%
• Non card holders at 2.6%
Measures to check
• IT solutions like monitoring movement of tank through Global Positioning System (GPS) to check adulterations
• Supplying the product directly to wholesalers/sub wholesalers
• Distribution is monitored under the supervision of Panchayati Raj Institutions (PRI)
• Marker system to detect adulteration of kerosene in Diesel
• Monitoring of LPG cylinder usage - RFID tags for LPG Cylinders
In spite of these : benefits of the subsidy not reaching targeted section
Subsidies : solutions ahead
• Targeted Subsidies – rather than General Ones
• Restrict only to BPL families
• Mark to Market at the point of retail sale for all consumers
• Subsidy can be passed through alternate mechanisms such as :
• Introduction of Coupons
• Smart Debit Cards
• Based on Quantity RestrictionsRestricting Subsidy to BPL families will bring down the Subsidy burden by 40%
SKO Pricing – Calculation of Cost PricePrice is calculated based on Import Parity Price
methodology which works as follows:S. No Cost Component
Unit Basis of Computation
1 FOB Value S/bbl Monthly Average quotes of Platts Asia Specific Arab Gulf and Petroleum Argus including Premium/Discount
2 Ocean Freight S/bbl World Scale freight from Sitra to the respective ports adjusted for prevailing AFRA for MR size vessel
3 C&F Price $/KL Total of 1+2 and apply exchange rate
4 Other Charges Rs/KL Insurance, ocean loss, LC charges, wharfage
5 Refinery Transfer Price
Rs/KL Total Above represents RTP
6 Ex-Storage Price
Rs/KL For the above price add Storage, Distribution, Return on investment, Inland Freight, Stock loss and Working Capital to arrive Ex-Storage Price at Depot
7 Under Recovery
Rs/KL Wt Average Ex-storage price for all refineries calculated as per above formula – Ex-storage price at which OMCs are allowed to sell SKO to end consumers
Calculation of Retail Selling Price
Ex-Storage Point Price Common at all Refineries
Freight Notional Rail Freight at APM Period
State Specific Cost At rates applicable for respective states
Sales tax/VAT At rates applicable States
Dealer commission Retail and wholesale as decided by state governments
Selling Price at Location Total of Above
Computation of Retail Selling Price is given below: