Explained | Why LPG prices are rising
The government has blamed the rise in international rates for the spike in prices of LPG in India. The surge could push it to resume paying the subsidy on cooking gas, which was stopped after global prices fell when the pandemic began to take hold. Cooking gas prices in Delhi zoomed from Rs 581.5 a cylinder in May 2020 to Rs 819 as of March 1, 2021 Adding to the woes of consumers, the price of liquefied petroleum gas (LPG) for domestic consumption has increased by 41 per cent or Rs 237.5 per cylinder in the last ten months. Cooking gas prices in Delhi zoomed from Rs 581.5 a cylinder in May 2020 to Rs 819 as of March 1, 2021. In 2021 alone, prices were hiked by Rs 125 per cylinder with three consecutive hikes in February, going against the conventional practice of having only one hike in a month. India has a total of around 288 million LPG consumers, of which 135 million are served by Indian Oil Corporation, 74 milion by Bharat Petroleum Corporation and 79 million by Hindustan Petroleum Corporation. There has been a 95 per cent increase in India’s LPG consumption from 148 million in 2014-15. The country’s LPG penetration is almost 99 per cent now, mainly owing to the Pradhan Mantri Ujjwala Yojana (PMUY). It is this spike in the number of users that makes the rise in prices a cause for concern as more than 80 million people below the poverty line are consumers under the Ujjwala scheme. Moreover, the government did away with the direct benefit transfer on LPG (DBTL) subsidy from May 2020. The price of LPG is decided based on an import parity price (IPP) formula, which is based on international product prices. Saudi Aramco’s contract prices are considered a benchmark for this calculation. The IPP formula includes Saudi Aramco’s LPG prices, free-on-board price, ocean freight charges, customs duties and port dues. Local freight charges, bottling charges, marketing costs, margins for OMCs, dealer commissions and Goods and Services Tax are also factored in before determining the final LPG retail price in India. In addition, currency fluctuations also affect prices. It is because of this weightage of international prices that the government points to the rise in global prices as the major reason for the spike in Indian rates. Why LPG prices are increasing The Indian Basket Crude oil price increased from an average of $20.20 a barrel in May 2020 to $64.54 a barrel on March 2, 2021. Brent crude prices increased to $63.77 a barrel at one point on March 2 as compared to a historic low of $19 a barrel in April 2020. India’s LPG mix has a 60 per cent share of butane and 40 per cent share of propane. Hence, the prices of these two are considered vital. In March, Saudi Aramco set its term contract price at $625 per metric tonne, up by $20 per mt from February. Similarly, butane prices also increased by $10 to $595 per mt in March. This is a 171 per cent increase in propane and a 148 per cent increase in butane prices since May 2020, when the propane price was at $230 per mt and butane at $240 per mt. On the other hand, the exchange rate on March 2 was Rs 73.29 per dollar as compared to the average rate of Rs 76.23 per dollar in May. How the price rise will affect the government The government had eliminated the subsidy on LPG when international prices dipped owing to the COVID-19 pandemic. In Delhi and several other States, the government stopped paying a subsidy under the DBTL scheme from May. The current increase in prices means that the government will have to bring back the subsidy on cooking gas. In the Budget last month, Finance Minister Nirmala Sitharaman had provided Rs 124.80 billion as LPG subsidy for 2021-22, as compared to Rs 255.20 billion in 2020-21 and Rs 356.05 billion in 2019-20. This indicates that the government is likely to bring back the subsidy mechanism soon.
Praj Industries, Repos Energy plan to tie up for bio-mobility
Bio-based technologies and engineering company Praj Industries and Repos Energy plan to join hands for bio-mobility and launch mobile biofuel selling units. In a statement, Repos Energy said that a collaboration was discussed during a recent the two companies. The two companies are likely to sign a memorandum of understanding soon in this regard. With the government pushing the use of sustainable resources of energy, the concept of bio-mobility is set to gain momentum in the coming months, it said. Amid the various developments and new policies which are being set to boost the production of fuel from bio-waste, the shift towards the use of greener and greener fuels is the only solution. “To bring this solution to the end-users through technology on wheels, Praj Industries, with Repos Energy, energy distribution startup will soon bring biofuel on wheels,” said the statement. Founder Chairman of Praj Industries, Pramod Chaudhari said: “We want to build a carbon-neutral energy distribution ecosystem from agriculture to end-users through a vehicle. What Repos offers as a distribution solution was the only missing link in our ecosystem. Together, we can move towards carbon-neutral indigenous fuels.” Co-founder of Repos Energy, Chetan Walunj said that India is on its way to become one of the highest consumers of energy in the coming decade. “We need to explore the newer and greener ways of energy distribution using technology. And this is the only way ahead to meet the PM’s mission of COP 21,” he said.
Petrol price can come down to Rs 75 if brought under GST, but there is lack of political will: SBI Economists
Petrol price can go down to Rs 75 a litre across the country if brought under the ambit of the Goods and Services Tax (GST), but there is a lack of political will, which is keeping Indian oil product prices at one of the highest in the world, economists at SBI said on Thursday. Diesel will come at Rs 68 a litre and the revenue loss for the Centre and states will be only Rs 1 lakh crore or 0.4 per cent of GDP, according to the calculation by the economists made under the assumption of global crude prices at USD 60 a barrel and exchange rate at Rs 73 per dollar. At present, every state has its own way of taxing fuels, while the Centre also collects its own duties and cess. Petrol prices have touched Rs 100 per litre in some pockets of the country and concerns are being expressed about the high taxation which is making the fuels dearer. The SBI economists said bringing petrol and diesel under the goods and services tax is an unfinished agenda of the GST framework and getting the prices under the new indirect taxes framework can help. “Centre and states are loathing to bring crude oil products under the GST regime as sales tax/VAT (value added tax) on petroleum products is a major source of own tax revenue for them. Thus, there is lack of political will to bring crude under the ambit of GST,” they said. At present, states choose to levy a combination of ad valorem tax, cess, extra VAT/surcharge based on their needs and these taxes are imposed after taking into account the crude price, the transportation charge, the dealer commission and the flat excise duty imposed by the Centre, they explained. Assuming for the crude prices and dollar rate, transportation charges at Rs 7.25 for diesel and Rs 3.82 for petrol, dealer commission of Rs 2.53 for diesel and Rs 3.67 for petrol, cess of Rs 30 for petrol and Rs 20 for diesel which will be divided equally between the Centre and states, and GST rate at 28 per cent, the economists came at the final price estimates. A growth in the consumption – diesel going up 15 per cent and petrol by 10 per cent – has been used to assess the Rs 1 lakh crore fiscal impact of getting petroleum prices under GST, it said. An increase of USD 1 in the crude oil prices will push up the petrol price by around 50 paise and diesel prices by around Rs 1.50, and bring down the overall deviation by around Rs 1,500 crore under the baseline scenario, it said. States, which have the highest share of tax revenues at present, will be the biggest losers if the system shifts to GST, it said, quickly adding that such a move will help consumers pay up to Rs 30 less. Interestingly, the simulation exercise suggests that when crude oil price declines by USD 10 per barrel, Centre and states could save close to Rs 18,000 crore, if they keep the petrol prices at baseline prices without passing the benefit to consumers, which is higher than the savings of Rs 9,000 crore when the crude prices go up by a same measure. “We thus recommend the government build up an oil price stabilisation fund which can be used in bad times for compensating revenue loss by cross subsidising fund saved from good times, without hurting the consumer,” it said. For the LPG cylinders, the economists proposed an increased and graded subsidy may be provided to poor consumers which can be tapered off over a period of, say, 5-years. Meanwhile, the note said the latest revenue and expenditure numbers could lead to lowering of fiscal deficit to 8.7 per cent in FY21, down from 9.5 per cent in the revised budget estimates. It is highly likely that the Government might cancel its Rs 49,000 crore borrowing planned in the last fortnight of March, they said.
India’s Reliance looks to green energy, hydrogen as aims for net zero
India’s Reliance Industries, operator of the world’s biggest refining complex, said on Wednesday its non-energy businesses and increased use of renewable power would help it meet a goal of net zero carbon by 2035. The leading petrochemical producer and operator of a refining complex in the western Gujarat state that can daily process 1.4 million barrels of crude is also present in India’s retail and telecom sectors. Reliance has traditionally used its own fossil fuel-fired generation for its giant refineries and manufacturing plants. Now the company is “aggressively working” towards using renewable power from the grid, Sanjiv Singh, president of Reliance’s oil to chemical business said at IHS CERAWEEK. As pressure mounts on the energy industry to reduce its carbon emissions, governments and companies globally are betting on clean hydrogen playing a leading role, but its future uses and costs are uncertain. Singh said Reliance was among those seeking to use green hydrogen, or hydrogen produced using only renewable energy. “Utilisation of green hydrogen will become a very big option. Now we are working on different options for producing green hydrogen,” he said. Singh, who joined Reliance in August after retiring as chairman of the country’s biggest refiner and fuel retailer Indian Oil Corp, said Reliance’s 2035 target was challenging because of the company’s sheer size. “Nevertheless we are committed to achieve this,” he said, adding the group’s less energy intensive activities and efficient energy use would play the biggest part. In addition, Singh said Reliance was working on investing in technologies to capture and store carbon for conversion into products and chemicals to decarbonise its business. “I think no single formula is going to work to achieve this (2035 net zero carbon) target but a combination of everything. I am sure that we are going to achieve this target,” he said. Morgan Stanley in a report last month said Reliance could invest $13 billion-$15 billion over a decade to build a portfolio of 18 gigawatts of renewables, 15 gigawatts for battery manufacturing and 3 gigawatts of hydrogen fuel sales amongst others.