Price build-up and the consumer

Price build-up and the consumer

Barring those six cooking gas cylinders that a consumer is entitled to at the subsidised price of  410 each (in Delhi) a year, crossing the limit is expected to cost you a fortune. Mend your consumption, or pay through the nose. It is your choice.

Activists of the CPM cook food with firewood in protest against the cap on low-cost LPG, in Bhubaneswar. The cost of the first six refills will be shared by the government and the upstream oil marketing companies by way of subsidy, but for the rest the consumers will pay their way. What pinches the pocket the most is that the price of cylinders procured from the market will vary every month depending on the import parity price of LPG.

The import parity price is based on several factors - the average FOB (free on board) value, premium or discounts prevailing in the international market and dollar-rupee exchange rate during the previous month.This also includes costs involved in transporting the goods to a particular location, insurance, port charges, handling, tariffs and other taxes.

The prices will be revised at the start of every month. Consequent to the rule, the state-owned oil companies have revised upwards the price of the non-subsidised 14.2 kg cooking gas cylinder by  127, taking the cost to  883.50 on account of increase in international oil prices. The prices will again vary in every state depending on the transportation cost and other charges.

At present, there are four different pricing mechanism for LPG cylinders. One for the subsidised cylinder, another for extra bottles that a household may buy after exhausting the entitlement of six subsidised cylinders. Third is another rate for charitable and other institutions and a fourth is the commercial pricing for LPG used in establishments like hotels.

The price of non-subsidised, non-domestic exempt category 14.2 kg LPG cylinder to be used by schools, universities, defence canteens, charitable institutions etc., will be  1,075 in Delhi, while that of a 19-kg bottle would be  1,536, subject to revision again, based on which way the global crude prices move.

No bar

There will be no restrictions on the number of non-subsidised cylinders over and above the six capped subsidised cylinders. These are the facts that the oil companies have clarified in the past.

But, the problem here is that price of LPG has already started moving northward in the global market. The Arab-Gulf LPG prices, to which Indian prices are linked, have reached $970 per tonne (FOB) as on September 30. There are chances they will move further north in peak winter when the demand for LPG, which is also used for heating purposes, increases. At the end of March this year, the prices had reached $1230 per tonne. 

In that case, prices of all categories, barring subsidised ones, will go up many more times than what they are now. The trend shows that the prices of fully-paid domestic LPG might go up close to  1,200 by March next as the demand peaks.

The government, however, has said it will not intervene in the LPG regime even if the prices skyrocket. Tighten your belts for tough times ahead.


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