The Centre’s Narendra Modi government has decided to hike the price of cooking gas for domestic consumption (subsidised LPG cylinders) by Rs 4 every month till the government subsidy on LPG become zero. This is not the first time Modi government has taken such a decision. Last year government decided to take the diesel route to eliminate the subsidies on LPG and since July 2016 Rs 2 was hiked per cylinder every month till July end this year.
Non subsided LPG (bought people people who willingly gave up subsidies on PM Modi’s call or those whose yearly quota of twelve 14.5kg cylinders have been exhausted) was on an upward swing in India since October 2016. Towards the end of March 2015, a non subsidised 14.5kg cylinder was costing Rs 727 in Delhi. After April that year, the prices started to drop and in September 2016, it reached at Rs 466.50.
Since then in the next 6 months, till March 2017, the price has increased majorly 6 times and the biggest two was in this year February (Rs 66.5) and the highest ever in history in March (Rs 86). We have to remember 2 things here – Since 2014 peak, international oil prices started to fall regularly and it is almost at a stable level now without much severe fluctuations, which is less than half from the time this government took charge and Rupee is more stable against USD.
Now, let us see some important developments in the background. On 3 September, 2015 Petroleum & Natural Gas Regulatory Board issued a public notice asking all the Oil PSUs to open their existing pipeline network as a common carrier which will enable private operators to use them.
It would have benefited private entities like Reliance and Essar Oil hugely as they could save billions of Rupees and the efforts of creating a pipeline network to carry their products from their refineries to distant parts of the country. In October same year, IOC opposed the move arguing that it will create supply issues for them as they own one of the largest oil pipeline networks in the country and opening 20 pipelines for common carriage means, their 50% of pipeline network cannot be used at their will and, therefore, will create huge supply issues because these pipelines are originating from their refineries and ending at supply depots.
PM Modi launched Ujjwala Yojana on 1 May, 2016. The government website states that “Pradhan Mantri Ujjwala Yojana (PMUY) aims to safeguard the health of women & children by providing them with a clean cooking fuel – LPG, so that they don’t have to compromise their health in smokey kitchens or wander in unsafe areas collecting firewood.”
Just a year before that, on 27 March 2015, PM started “Give it Up” campaign asking people to give up subsidy on cooking gas. After one year he thanked people claiming more than 10 million individuals had surrendered LPG subsidy on his call and government was able to save a whopping ₹15,000 crore.
On 27 November, 2016, The Hindu reported that Reliance Industries had sought permission from IOC and PNGRB to use IOC’s longest LPG transportation pipeline which transported LPG to rural areas of northern India include interiors of Uttar Pradesh and Madhya Pradesh. RIL Wanted PNGRB to declare all the facilities of IOC – include pipeline, storage facilities and loading facilities – as common carrier which will give them access to all of the IOC facilities without any major investments.
There is a background to this letter. Till 2015, Private entities like could not distribute LPG to domestic consumers because The LPG Control Order makes it mandatory that all LPG produced by private entities must be supplied to state run oil companies.
Parallel marketeers were free to supply to bulk users only. But in 2014, RIL contested the ministry’s view that it cannot retail LPG to domestic customers. It argued that rules did not make it mandatory for the company to sell the entire LPG produced only to oil PSUs. Following this, the ministry in August 2014 allowed RIL (through its subsidiary LPG Infrastructure India Ltd) to sell 10000 tonnes per month to parallel marketeers.
In October 2016, RIL ventured into domestic LPG retailing by launching a pilot project in four districts with 5 kg cylinders. But, as a private player, they are not eligible to get government subsidy which is available for domestic consumers. In June 2016, Modi government had already decided to abolish subsidy gradually on LPG and announced its decision to increase the price of a cylinder by ₹2 every month till government subsidy reached zero level.
It went on like that till July 2017 and to accelerate the reduction of subsidy govt decided to double the incremental amount from ₹2 to ₹4 every month. The latest notification says that this will go on until either the subsidy has become nil or government has ordered otherwise. If government is not ordering otherwise before March next year, by April, domestic LPG will be sold without any government subsidy in the country. It will be apt to read this message from Reliance in this occasion
Now let us correlate all these together. 1)Mr. Modi asked Indians to give up or surrender / LPG subsidy 2) Petroleum & Natural Gas Regulatory Authority asked all the oil PSUs to open their oil pipelines for private producers like Reliance and Essar Oil. 3) Government allowed Reliance to venture into domestic LPG market and RIL started a pilot project 4) RIL wrote to PNGRB to allow it to use / access IOC gas pipeline and storage and bottling facilities. 5) Govt decided to withdraw complete subsidy on LPG by March 2017.
Questions are: Did Modi ask people to surrender subsidy and start Ujjwala to promote LPG in Rural areas to facilitate Reliance’s entry into the domestic LPG market? It seems Yes.
There is a clear pattern to all these systematic developments which states in certain terms that, Modi wanted his crony to enter the lucrative (without subsidy) and ever growing domestic LPG market and he was paving the way for that by befooling an entire country.
(Ravi Nair is a Delhi-based analyst and consultant. He can be reached by his Twitter handle @t_d_h_nair Views expressed here are the author’s own.)