Who Fixes the Price of LPG Gas and How do They Determine It?

The pricing mechanisms for various petroleum products, including Liquefied Petroleum Gas (LPG) gas, are intricately linked to both global market dynamics and governmental regulatory frameworks. This article delves into the complexities of determining LPG gas prices, focusing on the role played by the government, petroleum pricing committees, and state-run oil companies.

The Changing Dynamics of Price Fixing

Traditionally, the price of oil products, including LPG gas, was influenced primarily by the production companies. However, since the India government plays a central role in the ownership and regulation of these companies, the distinction between private and governmental control has become blurred. Today, the Principal Officer, Department of Petroleum, oversees the centralized decision-making process through the Petroleum Pricing Committee (PPC).

The Role of the Petroleum Pricing Committee

The PPC is responsible for determining the retail prices of various petroleum products, including LPG gas. The process involves several key steps:

Benchmark Pricing: The PPC bases its decisions on the benchmark price set by the Arab Gulf region. This price is established by ARAMCO and then adjusted through the Singapore freight netback method. Currency Conversion: The benchmark price is then converted to rupees using the current exchange rate between the US dollar and the Indian rupee. Dealers' Commission and Taxes: The final price is calculated by adding dealers' commission and both central and state taxes to the converted price.

This complex process ensures that the retail price of LPG gas reflects both international market conditions and domestic regulatory requirements.

The Evolution of Petrol and Diesel Pricing

It's worth noting that the process for setting the prices of petrol and diesel has been liberalized, with the government removing subsidies. Prior to June 26, 2010, and October 19, 2014, respectively, petrol and diesel prices were fully regulated by the state. However, from that point onwards, the state-run oil marketing companies decided prices based on international product prices, the rupee exchange rate, taxes, and inland freight and other cost factors.

Nevertheless, moving forward, at least two of these state-run oil marketing companies may no longer be under government control. Private owners and shareholders will require more autonomy and management control over setting prices to ensure profitability. This model is similar to that followed in the United States.

The Subsidy and Pricing Scenario of LPG Gas

Currently, the pricing of LPG gas cylinders is determined by state-run oil companies and is revised monthly. Households in India are entitled to purchase a maximum of 12 LPG cylinders per year at subsidized rates, though these subsidies have been eroded over the years.

Challenges with the Ujjwala Scheme

The Prime Minister's Ujjwala scheme aimed to provide subsidized LPG connections to poor households, but it has faced several challenges. The doubling of LPG gas prices in the last seven years can be attributed to the gradual increase in rates, with subsidies being progressively eroded.

The determination of LPG gas prices by state-run companies, albeit with a fixed ceiling on monthly revisions, ensures that the costs are aligned with international standards and domestic regulations. This model has proven effective in maintaining the stability of LPG gas prices while ensuring affordability for the masses.