The dismantling of the administered pricing mechanism (APM) in the petroleum sector was announced by the Government with effect from 1st April 2002. During the APM period, the subsidy on PDS Kerosene and domestic LPG and freight subsidy for far-flung areas were met through an oil pool account mechanism. While dismantling the APM, it was decided by the Government that the aforesaid subsidies/under recoveries to the oil companies shall be met from the Government budget.

Accordingly, the following schemes were notified with a view to put in place a mechanism to provide to the oil companies from the Government budget- the post APM subsidy on PDS Kerosene and domestic LPG and freight subsidy for far-flung areas:

1. PDS Kerosene and domestic LPG Subsidy Scheme, 2002 (Notified in Official Gazette vide No.P-20029/18/2001-PP dated 28.1.2002)
2. Freight Subsidy (For Far-Flung Areas) Scheme, 2002 (Notified in Official Gazette vide No.P-20029/18/2001-PP dated 28.1.2002)

As per the "PDS Kerosene and Domestic LPG Subsidy Scheme, 2002", a flat rate of subsidy per selling unit is to be given to Public Sector Oil Marketing Companies (OMCs) equal to the difference between the cost price and the issue price per selling unit as on 31.3.2002. The OMCs were to adjust the retail selling prices (RSP) of these products in line with international prices. However, in deference to Government directions, the price of PDS Kerosene has remained unchanged since March 2002, while only marginal increases have been made in the case of LPG. Thus, as of now, in addition to the Government subsidy, oil PSUs are sharing the burden of subsidizing domestic LPG and PDS kerosene.

PDS Kerosene and Domestic LPG Subsidy Scheme, 2002.

The Government had approved the PDS Kerosene and Domestic LPG Subsidy Scheme, 2002 w.e.f. 01.04.2002 for administering the Post APM (Administered Pricing Mechanism) subsidy on PDS Kerosene and Domestic LPG.

The subsidy under the scheme is provided on sales made by participating companies of Kerosene under the Public Distribution System (PDS Kerosene) and LPG Cylinders for Domestic Use (Domestic LPG). The quantity of PDS Kerosene on which subsidy is allowed for each states are limited to the allocations made by the Ministry of Petroleum And Natural Gas subject to actual quantities sold.

Currently, Indian Oil Corporation Limited (IOCL), Hindustan Petroleum Corporation Limited (HPCL), Bharat Petroleum Corporation Limited (BPCL) and IBP Company Limited (IBP) are allowed to participate in the scheme.

Determination of the amount of subsidy

The subsidy on PDS Kerosene and Domestic LPG are met from the budgetary Grants of Ministry of Petroleum and Natural Gas.

The amount of subsidy per selling unit is equal to the difference between the cost price and the issue price per selling unit and is computed ex -depot price for PDS Kerosene and ex -bottling plant for Domestic LPG. The amount of subsidy per selling unit for a given depot/bottling plant for the year 2002-03 was based on the issue price of the product and the cost price as on 01.04.2002. Subsidy per selling unit allowed for any depot/bottling plant effective 01.04.2002 remained unchanged for the financial year 2002-03.

The subsidy is to be phased out in 3-5 years as decided by the Government after consultation between the Ministry of Petroleum and Natural Gas and the Ministry of Finance. Government have further decided that the subsidy for the years 2004-05 to 2006-07 should be paid at 1/3rd level of the rates applicable for 2002-03.

Issue Price

For the depots/bottling plants from which sales of PDS Kerosene and Domestic LPG were being effected prior to the commencement of the scheme, the issue price of the product as on 31stMarch, 2002 was continued as such post 1st April, 2002. For this purpose, issue price means the invoice price of the product ex-depot/bottling plant excluding state surcharge, excise duty, sales tax, local levies and delivery charges.

Cost Price

Cost price for PDS Kerosene for any depot and of Domestic LPG cylinder for any bottling plant has been calculated on import parity basis, taking into account international prices prevailing during March 2002.

Impact of Subsidy

The average subsidy per selling unit on Domestic LPG & PDS Kerosene works out as under:-

The budgetary provision for payment of subsidy claims under the PDS Kerosene and Domestic LPG Subsidy Scheme, 2002 and the actual payments released from the Union Budget are as under:

Freight Subsidy (For Far Flung Areas) Scheme 2002

The freight subsidy for supplies and sales of products in the far-flung areas is provided for Kerosene under Public Distribution System (PDS Kerosene) and Liquified Petroleum Gas for domestic use (domestic LPG). The quantity of PDS Kerosene on which subsidy is allowed for each state are limited to the allocations made by the Ministry of Petroleum & Natural Gas subject to actual quantities sold.

The following areas constitute the "far-flung areas" for the purpose of this scheme.

• North Eastern States including Sikkim, except the districts in which Digboi, Guwahati, Bongaigaon and Numaligarh refineries are located.
• The States of Jammu & Kashmir excluding districts of Jammu & Kathwa, Himachal Pradesh, Uttranchal excluding the districts of Haridwar and Udhamsingh Nagar;
• Andaman & Nicobar Islands; and
• Lakshadweep Islands.

Currently, Indian Oil Corporation Limited (IOCL), Hindustan Petroleum Corporation Limited (HPCL), Bharat Petroleum Corporation Limited (BPCL) and IBP Company Limited (IBP) are allowed to participate in the scheme.

The freight subsidy on supplies on sales of PDS Kerosene and Domestic LPG covers a part of the freight cost in the eligible areas upto the wholesale dealers locations in case of PDS Kerosene and upto the LPG distributor location, including extension counters, in case of domestic LPG.

The entitlement of subsidy under the scheme from Ist April 2002 are limited to the freight subsidy available in the eligible areas as on 31st March 2002 in respect of the transportation cost for the distance:

For the North-East, from the bottling plant/depot upto LPG distributor/extension counter/wholesale dealer in the far-flung area.

For other far-flung areas from nearest tap off point or railhead to the bottling plant/depot and further upto LPG distributor/extension counter/wholesale dealer in the far-flung area.

Petroleum Planning & Analysis Cell (PPAC) scrutinizes the oil companies subsidy claims and forwards these to Ministry of Petroleum & Natural Gas for approval and releasing payment.

The subsidy is to be phased out in 3-5 years as decided by the Government after consultation between the Ministry of Petroleum and Natural Gas and Ministry of Finance. Government have decided that the subsidy for the years 2004-05 to 2006-07 should be paid at 1/3rd level of the rates applicable for 2002-03.

The budgetary provision for payment of subsidy claims under the Freight Subsidy (for far-flung areas) Scheme, 2002 and the actual payments released from the Union Budget are as under: