Thread by @ikkmurugan

LPG Cylinder Hike: Why the Media isn’t giving us the entire detail?

The price of 14 Kg Subsidised domestic cylinder was increased from ₹610 to ₹710 in chennai and other parts of the country as well. Undoubtedly, it is a pain but why was this hike brought now. (1/n)

Understanding of the consumption Pattern:

LPG coverage as of 2015 : 58%
LPG coverage as of 2020: 98.8% (Oct)

More than 8 Crore new connections given under Ujjwala scheme

Domestic households consume more than 90% of Subsidised LPG. (2/n)

Pricing Trend of Subsidised LPG Cylinder (Chennai): Indane (30% Market share)

🏷 December 2014: ₹749
🏷 December 2015: ₹621
🏷 December 2016: ₹593
🏷 December 2017: ₹756
🏷 December 2018: ₹826
🏷 December 2019: ₹714
🏷 December 2020: ₹660
🏷 Dec’ 16th 2020: ₹710 (3/n)

How is Price Fixation of LPG Done?

LPG pricing in India is done on the basis of import parity price (IPP). India Follows Saudi Aramco’s LPG price In USD. Cost of inland freight, marketing costs & OMC margins, bottling charges, dealer commission & the GST is added to this. (4/n)

Why is India Following Aramco’s pricing?

April to November LPG Production was 8.4 Million Metric Tons

April to November LPG consumption was 17.1 Million Metric Tons

India Exports the deficit from Middle East and the US (5/n)

Even during the Period of lock down when the transport fuel took a beating, LPG consumption increased over last year in the month of March 2020.

Production capacity remains constant at 12.8 MMTPA and the consumption has shown an increase of 10% even in 2019-20. (6/n)

How has Aramco’s Propane & Butane prices (Used for determining LPG pricing for exports from Middle East) performed over the last 6 years?

Compare this with the prices in (3/n), you will see the rate in Dec’18 at ₹826 corresponding to the spike in price of Aramco. (7/n)

Aramco’s Price for Propane:

April 2020: $230 Per Tonne
December 2020: $450 Per Tonne

60% of India’s LPG Consumption is imported and hence the IPP defines the pricing or the government has to start taking the beating on subsidies. (8/n)

After Aramco’s price Dip in April 2020, Government stopped Subsidy payments through Direct Benefit Transfer and reduced the price of Cylinder as well.

🏷 March 2020 : ₹826
🏷 April 2020 : ₹761.50
🏷 May 2020 : ₹569.50 (9/n)

It is evident that the benefit was instantly transferred to the consumer by the Import Purchase Parity Pricing Model and the government saved the subsidy payouts.

India hit a all time high in LPG imports in the month of September 2020 at 1.6 MMT for the month. (10/n)

Indian Government has allotted a Budget of ₹37,256 Crores in the current Budget for Fuel Subsidies for Oil Manufacturers.

Since May 2020, this subsidy has become a saving & is available in case the price of LPG cylinder moves above ₹800 per 14 Kg cylinder. (11/n)

The UPA II government paid 2.5 Crores in Fuel Subsidy through Direct Subsidies and Through Oil Bonds.

The current government stopped Diesel subsidy in December 2014 and has only allowed Fuel Subsidy. (12/n)

The current government has repaid Oil bonds worth ₹3500 Crores to Oil Manufacturers. But continues to pay ₹9000 Crores in interest every year.

₹10,000 Crores Principal payment has to be repaid in 2021 out of the pending balance of ₹1.34 Lakh Crores (13/n)

The interest payments and the pending principal repayments is one of the reasons the Current government is compelled not to reduce the price of Transport Fuel and LPG.

More subsidies only means more problems in the future (14/n)

Snapshot of India’s LPG growth and the Pricing breakup as of November 2020 👇

Imports** not exports

Current LPG price/Per Ltr In Major Countries

🇸🇦 Saudi Arabia : $0.20
🇷🇺 Russia : $0.34
🇺🇸 United States: $0.51
🇩🇪 Germany : $0.65
🇦🇺 Australia : $0.67
🇮🇳 India : $0.68
🇨🇦 Canada : $0.68
🇮🇹 Italy : $0.70
🇰🇷 South Korea : $0.73
🇬🇧 United Kingdom: $0.86
🇫🇷 France : $1.04

2.5 Lakh Crores*

Non subsidised**