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

Presentation outline Why How How Much Since When Impact Road Ahead

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”

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

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

SUBSIDIES : HOW MUCH

Subsidies quantum Government pays about Rs. 25 billion to oil companies towards subsides Rest is borne by Upstream Companies, Government Bonds and Marketing Companies (Estd) SKO LPG Year by year increasing in under recovery is effecting financial health of OMCs badly

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%

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

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%

SKO Pricing – Calculation of Cost Price Price is calculated based on Import Parity Price methodology which works as follows: S. NoCost ComponentUnitBasis of Computation 1FOB ValueS/bbl Monthly Average quotes of Platts Asia Specific Arab Gulf and Petroleum Argus including Premium/Discount 2Ocean Freight S/bblWorld Scale freight from Sitra to the respective ports adjusted for prevailing AFRA for MR size vessel 3C&F Price$/KLTotal of 1+2 and apply exchange rate 4Other ChargesRs/KLInsurance, ocean loss, LC charges, wharfage 5 Refinery Transfer Price Rs/KLTotal Above represents RTP 6Ex-Storage PriceRs/KL For the above price add Storage, Distribution, Return on investment, Inland Freight, Stock loss and Working Capital to arrive Ex-Storage Price at Depot 7Under RecoveryRs/KLWt Average Ex-storage price for all refineries calculated as per above formula – Ex-storage price at which OMCs are allowed to sell SKO to end consumers

Calculation of Retail Selling Price Ex-Storage Point PriceCommon at all Refineries FreightNotional Rail Freight at APM Period State Specific CostAt rates applicable for respective states Sales tax/VATAt rates applicable States Dealer commission Retail and wholesale as decided by state governments Selling Price at LocationTotal of Above Computation of Retail Selling Price is given below: