Next leg of Ujjwala scheme to focus on affordability of LPG: Oil ministry

Oil companies wait to recover around Rs 4,500 cr from existing PMUY beneficiaries

The next leg of the Pradhan Mantri Ujjwala Yojana (PMUY) is going to focus on affordability of Liquefied Petroleum Gas (LPG or cooking gas) refills. According to a top oil ministry official, this will be in line with the government's efforts to increase adoption of LPG through behavioural shifts among lower income households.

There is a fresh target to add another 10 million more PMUY beneficiaries to the existing 80 million. This will take the total number of LPG consumers in the country closer to 300 million by March 2022. This new disbursal target was announced by Union finance minister Nirmala Sitharaman in the latest Union Budget.

In response to queries from Business Standard, Indian Oil Corporation (IOCL) said the modalities for the release of 10 million more PMUY connections were under finalization by the Union petroleum ministry.

Sharing insight on the current impediments to adoption of LPG by PMUY beneficiaries, an oil ministry official said: “We have had meetings with District Nodal Officers (DNOs) and they have highlighted the issue of PMUY beneficiaries finding it difficult to shell out around Rs 800 per cylinder in one go. This is even though the cylinder lasts them around three months, effectively costing around Rs 250 a month of LPG usage. The 5 kg LPG cylinder option may be more viable.”

“The pricing and availability of a 5 kg cylinder needs to be made more comparable to a 14.2 kg cylinder,” the official added.

Currently on a per kg basis, the LPG in a 14.2 kg domestic cylinder costs around Rs 58 a kg. But it costs roughly Rs 94 a kg in a 5 kg FTL (free trade LPG) cylinder. According to LPG dealers, the FTL cylinders were supposed to be for a migratory population like students, IT professionals , among others who can afford more expensive cooking gas. But it finds hardly any buyers nowadays. The higher cost per kg dissuades consumers that are anyway price sensitive. These issues are soon expected to be addressed by increasing availability of LPG in a 5 kg domestic cylinders that costs around Rs 60 per kg.  

Outstanding loans under existing PMUY scheme

According to officials in the know, the three public sector oil marketing companies (OMCs) are waiting to recover around Rs 4,500 crore from existing PMUY beneficiaries. This amount has been accrued against the deposit-free LPG connections already disbursed to lower income households.

“The total loan given to PMUY beneficiaries by IOCL is Rs 4,847.05 crore. As on March 1, 2021, the total outstanding loan is Rs 3,039.53 crore,” IOCL said. In addition to this, the cash assistance for PMUY connections is reimbursed by the centre to OMCs. “As on date, Rs 8.52 crore is yet to be received by IOC from the government,” the company added.

These interest free loans were given to PMUY beneficiaries since the beginning of the scheme in May 2016. Under the offering, the upfront cost of Rs 1,600 per connection is given as a loan by the OMCs to the beneficiaries. This loan covers the cost of the first LPG cylinder and stove.

PMUY beneficiaries buy LPG cylinders at full cost and oil companies recover the loaned amount from the subsidy that is accrued on domestic (14.2 kg) LPG cylinders.

This makes the cylinder unaffordable for a large chunk of beneficiaries who tend to use them sparingly. They often revert to biomass (firewood or cow dung which they get for no additional financial cost) for their primary cooking needs when LPG prices shoot up.

On an average, the PMUY beneficiaries use three cylinders in a year. This is less than half the usage of non-PMUY cooking gas connection users.

The low number of cylinder refills makes it difficult for the oil companies to recover the loan amounts. To improve affordability of cylinders, the oil companies deferred recovery of loans for up to six-cylinder refills from March 2018.

“The centre had initially asked oil companies to defer the recovery of loans from PMUY beneficiaries for six months, and then extended this deferment by a year. This puts pressure on oil companies who end up paying finance costs on the due amount, even though they are not expected to get any interest on the loaned amount,” a former Director (finance) at an OMC said.

Under the present domestic LPG cylinder pricing regime, there is negligible subsidy on cooking gas but higher freight costs, for customers located away from depots, continue to be subsidised by the centre. This results in a subsidy of around Rs 20 to Rs 30 per domestic cylinder that costs upwards of Rs 800 a piece in the country. IOCL said, “Wherever it is available, the subsidy is adjusted against the outstanding loan of the PMUY consumer after a refill is taken.”

But this amount is so small that the companies will take much longer to recover the outstanding loaned amounts from beneficiaries besides currently there is no subsidy.