The Hindu Business Line : Oil cos moot coupons as LPG subsidy to BPL families

DOMESTIC oil companies have suggested using the coupon route for directing subsidy on cooking gas (LPG) to the more deserving segment - below poverty line (BPL) households.

In a presentation to the Government, the companies further said that the coupons could be tradable and that the LPG subsidy be converted into income subsidy.

As elimination of LPG subsidy in one stroke might be politically difficult, the next best alternative would be to try and cap the amount of subsidy by directing it to the more deserving segment of the LPG users, they said.

The presentation on the assessment of options for improvement of the system was made to the Petroleum Ministry under the aegis of Petrofed, an apex body of petroleum companies.

The Government is set to phase out subsidy on kerosene and LPG from March 2007, and these proposals would help in a smooth transition, official sources said.

Elaborating on the coupon scheme, the companies have suggested that households might be given up to eight coupons every year. Each coupon can be used as subsidy to get a cylinder.

Further, direct subsidy to BPL families through the coupon route would allow them to pay cash equal to retail price less the subsidy per coupon.

The companies have also suggested that the coupon surrendered by the consumer to the dealer could in turn be surrendered to oil companies, who would pay equivalent cash to the dealer.

Further, the BPL coupon holder might be allowed to trade the coupons, as this would convert the LPG subsidy into income subsidy, the companies said.

As the extent of penetration of LPG in BPL families is low, the companies have suggested that there should be a limit to the number of cylinders for which subsidy would be allowed to the customer, the official said.

The companies have also suggested that a phased subsidy elimination programme could be laid out.

The firms have also sought rationalisation of the tax structure and retail prices of the product.

In their submissions before the Government, the oil companies said that the impact of volatility of input costs on retail prices warrants closer examination.

Had the industry been competitive, this would not have been a major issue, they said, adding that under the current circumstances, a regulation is required so that prices are changed at appropriate intervals and still are neither excessive nor too low.

It would be appropriate to set up a regulator to review periodically the input costs and allow changes. The regulator might allow prices on the basis of average cost with a lag or may prescribe a band linked to input costs, the oil firms said, adding that the regulator could also monitor the prices to prevent any abuse.

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