Subsidy on kerosene may go by FY21 as fuel consumption shifts to LPG

Topics kerosene subsidy | LPG

The government is planning to bring down the allocation of subsidised kerosene that it makes to states to 2 million kiloliters (kl) by 2020-21 and phase out subsidy on the fuel in the same period.

As of September, subsidy on kerosene was as low as Rs 5.48 a litre and at the current level of international crude oil and product prices, the government may be able to do away with subsidy in about 22 months.

The subsidy on kerosene has come down by Rs 18,849 crore in the past five years, from Rs 24,799 crore in 2014-15 to Rs 5,950 crore during the financial year 2018-19 (FY19). “Our plan is to bring allocation down to 3.2-3.3 million kl by 2019-20 and further reduce it to 2 million kl by 2020-21,” said an official close to the development.

On a monthly basis, the government has been increasing the price of subsidised kerosene by 25 paise to phase out the subsidy.

A major reason for the decline in the consumption of kerosene was an increase in the number of liquefied petroleum gas (LPG) consumers in rural India after the government launched the Pradhan Mantri Ujjwala Yojana (PMUY), commonly called Ujjwala, in 2016.

For the entire FY20, the government has budgeted Rs 4,489 crore as kerosene subsidy, which was Rs 940 crore in the first quarter.

The decision by various states and Union territories — including Delhi, Haryana, Punjab, Andhra Pradesh, Chandigarh, Daman and Diu, Dadar and Nagar Haveli, Andaman and Nicobar Islands and Puducherry — to turn kerosene-free has also helped bring the consumption down.

The price of kerosene has increased over 123 per cent in Kolkata and Mumbai since December 2014 to reach Rs 35.76 a litre and Rs 33.76 a litre, respectively.

Officials indicate that several states have also opted for a voluntary cut on consumption.

According to the data available with the Petroleum Planning and Analysis Cell (PPAC), kerosene consumption between April and August 2019 has shown a negative growth of 19.5 per cent as compared to the same period last year.

In August, consumption saw a decline of 24 per cent. “August saw nil upliftment by Andhra Pradesh, Chandigarh, Delhi, Dadra & Nagar Haveli, Daman & Diu, Haryana, Puducherry, Punjab and Uttarakhand,” said a PPAC report.

With the success of the Ujjwala scheme, LPG penetration has increased from around 62 per cent in 2014 to around 94 per cent now.

With kerosene consumption declining and surplus available in the market, Indian refineries will look to adopt new technologies to convert surplus kerosene into other products, said Mike Banach, regional general manager, Honeywell UOP in India.

Honeywell has recently introduced kerosene unicracking process, which converts surplus kerosene into heavy naphtha to feed the growing demand for petrochemicals. The technology was developed at Honeywell India Technology Center in Gurgaon.

“The kerosene unicracking process, developed specifically for India, will allow refiners to efficiently convert surplus kerosene production into the heavy naphtha and LPG feedstocks needed to make petrochemicals,” Banach added.

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