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SUBISDIES ON COOKING FUELS

SUBISDIES ON COOKING FUELS. R.P Natekar GM (Treasury) BPCL. Presentation outline. Since When. 1. Why. 2. 3. How. 4. How Much. 5. Impact. 6. Road Ahead. Subsidies : Since When. Consumer pricing for Cooking Fuels – Subsidized since APM

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SUBISDIES ON COOKING FUELS

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  1. SUBISDIES ON COOKING FUELS R.P Natekar GM (Treasury) BPCL

  2. Presentation outline Since When 1 Why 2 3 How 4 How Much 5 Impact 6 Road Ahead

  3. 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”

  4. 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

  5. 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

  6. SUBSIDIES : HOW MUCH

  7. SUBSIDIES : HOW MUCH

  8. Government pays about Rs. 25 billion to oil companies towards subsides Subsidies quantum Year by year increasing in under recovery is effecting financial health of OMCs badly

  9. 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%

  10. 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

  11. 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 Restrictions Restricting Subsidy to BPL families will bring down the Subsidy burden by 40%

  12. SKO Pricing – Calculation of Cost Price Price is calculated based on Import Parity Price methodology which works as follows:

  13. Calculation of Retail Selling Price Computation of Retail Selling Price is given below:

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