Kerosene, LPG pricing

The petroleum ministry?s proposal to phase in increases in the prices of LPG and kerosene to more closely reflect the cost of supply needs to be welcomed. If crude oil prices remain at today?s level of less than $60 per barrel, approximately 35% of the subsidy burden would be eliminated by January 1, 2006 and another 35% by October 2006. There-after, it could take nearly a year more for the price to reflect current costs of LPG supply. In case of kerosene, the families above the poverty line would be paying almost the full cost of kerosene by April 2007. However, those below the poverty line would still enjoy a subsidy benefit of over 40%. Having said that, the proposal still smacks of an administered price regime. Apart from earlier government pronouncements, the draft Integrated Energy Policy?put out for comments by the Planning Commission on its website? also clearly identifies the need for allowing ?market forces to determine prices,? while recognising the role of ?transparent and targeted subsidies.? The ministry?s proposal is silent on these issues and on who would bear the cost of remaining subsidies. Analyses by both TERI and NCAER have highlighted the problem of adulteration of diesel with kerosene. Even at an import parity price of Rs 21 per litre, kerosene would be significantly cheaper than diesel, thereby creating a market for adulteration. Kerosene earmarked for BPL families would find its way into this market. The roadmap does not address this key issue of differential pricing of similar products. Additionally, mere removal of subsidies will not ensure greater use of these clean energy forms. Data from the Census of India, 2001 indicate that LPG use constitutes less than 50% of the urban cooking energy demand (with kerosene contributing another 20%) and about 5% of rural cooking energy demand (kerosene contribution 2%). If kerosene were to be priced fully, its end-use cost would become comparable with that of LPG and would push consumers towards increasing use of biomass, leading to environmental and health problems. The petroleum ministry and the Energy Coordination Com-mittee need to take a holistic view of the pricing of these sensitive products and differentiate between strategies for ensuring cost recovery and access by consumers. A large segment of India?s population?even those above the poverty line? would need to be supported to meet their energy requirements in a clean and convenient manner. This support needs to come in the form of direct fuel subsidies to consumers and not as subsidised fuels. TERI?s suggestion of using smart cards for delivering energy subsidies must be investigated with an open mind.