Explained: How rising LPG price is burning a hole in your pocket

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Unlike petrol and diesel prices, the price of an LPG cylinder is generally revised once a month. In the four metro cities, the price of a 14.2 kg cooking gas cylinder varies between Rs 809 and Rs 855 depending upon the state’s tax structure.

In the last 2 years, the price of an LPG cylinder has been revised at least 12 times. Since June 2019, the price has been hiked by almost Rs 90.

In May 2020, the price of a cylinder was at Rs 580.

Pinch in the pocket The subsidy on the cooking gas cylinder has dropped over 96%, from Rs 563 in 2015 to just Rs 19 in May 2021, while the price of the cylinder has dropped from Rs 999 to Rs 809-855 during the same period.

Besides, experts are also anticipating a price hike tracking international markets. “The price might again rise by at least Rs 20 as the international prices are soaring. The government generally hikes prices in tandem with the rise in prices in the global markets but do not pass on the benefit to the consumer when the global price levels fall,” said Bijan Biswas, secretary, West Bengal Indane Distributors Association.

Cylinders sold on market price under PMUY after exhausting free limit India has total 28.5 crore LPG connections till March, 2021, of which 83 lakh connections have been given under Pradhan Mantri Ujjwala Yojana (PMUY) since its launch in May 1, 2016. Within a 5-year span government issued 83 lakh gas connections to the poorer section of the society and aims to issue another 30 lakhs by March, 2022.

But ironically, these households have to buy cylinders at the market price after three free cylinder limits.

During the first wave of Covid-19 pandemic last year central government allowed three free cylinders to these customers.

Decoding the price As on June, the cylinder costs Rs 809 in Mumbai and Delhi, Rs 835 in Kolkata, Rs 825 in Chennai and Rs 907 in Patna.

According to the Indian Oil, the company with the biggest network of LGP dealers, a cylinder attracts 9% Central GST and 9% state GST. Besides, there is a dealer commission of Rs 61 for every cylinder.

Dealer commission includes local freight charges, bottling charges and marketing costs. Margins for oil marketing companies are around Rs 4.5 per cylinder.

Additionally, the domestic consumer now gets about Rs 19 as government subsidy for each cylinder.

LPG dealers said, an LPG cylinder costs around Rs 615 excluding the 18% GST.

The pricing of LPG is determined by the international prices of propane and butane and US dollar-rupee exchange rates. But industry insiders confirmed that since March the price of butane and propane declined by over 20%.

In 2021, the price of a domestic LPG cylinder was reduced by only Rs 10 in March. However, it was hiked by Rs 125 since January.

International price The price of LPG is based on an import parity price (IPP) formula, which is based on international product prices.

Saudi Aramco’s contract prices are considered a benchmark for this calculation. The IPP formula includes Saudi Aramco’s LPG prices, free-on-board price, ocean freight charges, customs duties and port dues levied upon the final price.

On top of this GST and dealer commission are added before it is delivered to the customer.

In March the price of 1 ton propane and butane was $625 and $595 as charged by Saudi Aramco. It was $560 and $530 in April. The price was reduced in May to $495 and $475 respectively.

But In June both prices were hiked to $530 and $520. Therefore, some feel that the price of LPG might go up again in the next few weeks.