Oil Ministry justifies LPG price hike, blames international market prices

The oil ministry on Thursday justified the steep Rs 144.50 per cylinder hike in cooking gas LPG prices, saying the rates are based on the international market price that had increased over 26 per cent last month.

It also said domestic consumers have been largely insulated from the hike by way of the large increase in subsidy.

"The LPG price is derived based on the international market price for the previous month," the ministry said in a statement.

"On account of a sharp increase in the international price of LPG during January 2020 from $448 per ton to USD 567 a tonne, there has been a hike of Rs 144.50 for a 14.2 kg cylinder," it added.

The ministry said the increase in price for 26.12 crore out of total LPG user base of 27.76 crore is borne by the government by enhancing the subsidy component.

The government gives a subsidy to LPG users under two different heads -- direct benefit transfer or PAHAL for domestic users and Pradhan Mantri Ujjwala Yojana (PMUY) beneficiaries.

"While the price of domestic non-subsidised LPG cylinder has increased from Rs 714 per cylinder to Rs 858.50 per cylinder, the subsidy amount to subsidised consumers in Delhi has increased from Rs 153.86 per cylinder to Rs 291.48 per cylinder.

"In view of the subsidised price determined by the government, the subsidised LPG consumers are insulated from the volatility of LPG prices in the international market," the statement said.

For the PMUY consumers, the subsidy borne by the government has increased from Rs 174.86 per cylinder to Rs 312.48 per cylinder.

"Therefore, the impact of the price hike is mostly borne by the government by enhancing the subsidy for subsidized and PMUY consumers," it said.

The price hike announced by oil companies on Wednesday was the steepest in six years. In January 2014, prices had gone up by Rs 220 per cylinder to Rs 1,241.

Domestic LPG users are entitled to buy 12 bottles of 14.2-kg each at subsidised rates in a year. Beyond this limit, consumers have to purchase at market price.

After accounting for the subsidy that is transferred directly into the bank accounts of LPG users, a 14.2-kg cylinder would cost Rs 567.02 for domestic users and Rs 546.02 for PMUY users.

The government gave out eight crore free LPG connections to poor women under PMUY to increase coverage of environment-friendly fuel in kitchens.

Normally, LPG rates are revised on the 1st of every month but this time it took almost two weeks for the revision to take place. The ministry's statement did not say why the revision was pushed by 12 days.