Cabinet may soon take up extending subsidy to BPCL after privatisation

LPG customers of state-owned OMCs with less than Rs 10 lakh annual income get cash subsidy through direct benefit transfer in their bank accounts

The Union Cabinet may soon consider allowing Bharat Petroleum Corporation (BPCL) to receive subsidy for specific petroleum products for a few years after it is privatised to ensure continuity.

The move would help the government in moving ahead with the privatisation process by providing clarity to potential bidders.

As the Department of Investment and Public Asset Management readies the request for proposal of the sale of the oil marketing company, the government will have to provide clarity on the treatment of subsidies to shortlisted bidders, said a senior government official.

The oil ministry has decided to extend the current practise of subsidising LPG for BPCL customers for a few years, and a Cabinet note on the same has been prepared, the official said. The Cabinet will take it up for consideration soon, he added.

Earlier this month, Minister of State for Finance Anurag Thakur said before inviting financial bids for privatisation of BPCL, the government will decide on continuing subsidised rates for specific petroleum products after the PSU’s disinvestment.

LPG customers of state-owned oil marketing companies (OMCs) with less than Rs 10 lakh annual income get cash subsidy through direct benefit transfer in their bank accounts. Besides, these companies also implement the government’s Pradhan Mantri Ujjwala Yojana under which free LPG connections are given to the poor. Both these forms of subsidy are not available to customers of private firms.

Currently, however, the subsidy of cylinders is nil since OMCs have been increasing the price of domestic LPG cylinders bringing them on a par with global rates.

In a recent note, Fitch Ratings said there was a need for further clarity on the future of subsidies paid to BPCL’s customers on the sale of LPG and kerosene as well as the freedom on pricing of petrol and diesel before the divestment can conclude.

However, as prices of petrol and diesel are deregulated, the new buyer will have freedom to fix them, and the government is unlikely to delve into the issue, the official said. 

If a situation of oil PSUs absorbing fuel price hike arises in the future, it may nudge the private OMCs to reduce prices for a healthy competition, in turn benefiting consumers, said the official quoted above.