PSU oil companies yet to recover about Rs 4,000 cr from PMUY beneficiaries

Companies may end up booking this amount as a loss or a customer acquisition cost

IndianOil (IOCL), Hindustan Petroleum (HPCL), and Bharat Petroleum (BPCL) are collectively yet to recover Rs 3,000-4,000 crore from the Pradhan Mantri Ujjwala Yojana (PMUY) beneficiaries, according to official estimates. It is expected that these public sector undertaking (PSU) oil marketing companies (OMCs) will have to adjust this amount as a customer acquisition cost, or even a loss, as their recovery is not expected anytime soon.

“The government does not intend to reimburse the oil companies for this outstanding amount,” a senior official told Business Standard.

The amount was to be recovered through the budgetary subsidy accrued on the refill of cylinders by PMUY beneficiaries. It was earlier planned that beneficiaries would buy cylinders at full price till the loaned amount of around Rs 1,600 per connection was not recovered by the oil companies. But PMUY beneficiaries seemed unable to bear the high cost of cylinders and did not go for refills at all.

This prompted oil marketing companies to forego the recovery of these amounts indefinitely. With nil budgetary subsidy on Liquefied Petroleum Gas (LPG) or cooking gas being now borne by the centre, these amounts are most likely to be written off by the PSUs.

Under the first leg of PMUY, a financial support of Rs 1600 for each LPG connection was provided to eligible below poverty line (BPL) households. This was the component covered by a budgetary subsidy. The OMCs were to provide an interest free loan facility for meeting the cost of stove (also called hot plate) and the first refill. Oil companies expected that this loan was to be recovered from the subsidy accrued on refills, and will now be a write off.

In May 2016, when the scheme was launched, India was home to more than 240 million households out of which about 100 million were deprived of LPG as cooking fuel, according to official estimates. These families had to rely on firewood, coal, and dung – cakes among others as primary source of cooking.

The scheme has been a roaring success when it comes to increasing LPG coverage and over 83 million connections have been disbursed under the first leg of PMUY. According to Petroleum Minister Hardeep Puri, the country has over 300 million LPG connections in 2021.

This last mile connectivity is on the back of the second leg of PMUY under which 10 million more connections were to be disbursed. The OMCs are fully bearing the cost of the first refill and stove under PMUY 2.0.  

According to officials in the know, more than 10 million valid applications have already been received. With this, the target for disbursing new connections in the Budget 2021 has been saturated and the Oil Ministry will be seeking post-facto approvals for disbursing more.

While the connection disbursals have been a success, the price of a domestic (14.2 kg) cooking gas cylinders has been a matter of concern. The price was hiked by Rs 15 apiece on Wednesday. After the price revision, a domestic cylinder now costs Rs 899.50 in the national capital. A similar price revision was implemented across the country.

Due to global pressures, OMCs are moderating the price of cooking gas in a bid to maintain affordability effectively, harking back to the days when they were bearing the subsidy burden of petroleum products. According to executives in the know, IndianOil, Hindustan Petroleum, and Bharat Petroleum are holding back liquefied petroleum gas (LPG) price hikes by around Rs 100 for a domestic cylinder.

The price of a commercial (19 kg) LPG cylinder was hiked earlier this month by Rs 43, taking its cost to Rs 1,736 apiece.

LPG, petrol and diesel prices have been moving upwards due to global cues such as sustained tightening of crude oil supplies by Organization of the Petroleum Exporting Countries (OPEC) and its allies.