Government has decided to cap the subsidy payout on kerosene at Rs 12 per litre but rates will not increase as upstream firms like ONGC will be asked to pay Rs 5,000-6,000 crore to maintain retail prices at the current level.

Kerosene through public distribution system (PDS) is sold at Rs 14.96 per litre against the actual cost of Rs 33.47. The difference between the two, Rs 18.51 per litre is termed as under-recovery or revenue loss.

The formula for meeting this under-recovery has now been finalised, a senior official said. “The Finance Ministry will pay Rs 12 per litre in cash to state-owned fuel retailers from the Budget and any unbridged gap between the retail selling price and the cost of production will be borne by upstream companies like ONGC,” he said.

At current prices, the upstream companies will have to bear Rs 6.51 per litre or Rs 5,000-6,000 crore for the full year.

For domestic cooking gas LPG, the government has decided to fully bear the under-recovery, he said.

As many as 12 LPG cylinders of 14.2-kg are supplied to every household at a subsidised rate of Rs 417.82. There is an under-recovery of Rs 198.68 per cylinder, which the government will bear entirely. “Since the government has launched the direct benefit transfer (DBT) for LPG wherein cash subsidy is transferred from the exchequer directly to cooking gas consumers, the finance ministry has decided to bear it in entirely,” he said.

LPG consumers get subsidy equivalent to the under-recovery directly in their bank accounts so that they can purchase a 14.2-kg bottle at market price of Rs 608.50.

The official said the Budget for 2015-16 has provided for Rs 22,000 crore towards LPG subsidy and another Rs 8,000 crore on kerosene. “While provisioning for kerosene is sufficient, additional funds may have to be provided in supplementary demands for LPG,” he added.

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