The government’s recent decision to allow public sector oil marketing companies (OMC) to increase the price of subsidised LPG by ₹4 per month instead of two rupees a month earlier will hasten the price deregulation process, rating agency ICRA said on Tuesday.
Petroleum Minister Dharmendra Pradhan on Monday told Parliament that the government had on May 30 authorised OMCs to increase the effective price of subsidised domestic LPG by ₹4 per cylinder from June 1 per month until the government’s subsidy was reduced to nil, or till March 2018, whichever was earliest.
“In ICRA’s view, the steeper monthly hike is aimed at achieving the deregulation in subsidised LPG prices in a shorter time frame,” an agency release said. Now the LPG prices can be deregulated in around two years. OMCs would gain from the marginal savings on interest burden due to lower under-recoveries.
“As the GoI (Government of India) aims to deregulate LPG prices by reducing the subsidy level to nil, the risk related to material under-recovery burden on OMCs or PSU upstream companies in a high crude oil price scenario has reduced significantly, which is a credit positive for the PSU oil companies in case crude oil prices increase beyond $65 per barrel over the long term,” Mr Ravichandran added.
“Nonetheless, the deregulation in LPG prices will open the market for private players and OMCs may face increased competition from private or standalone refineries over the longer term,” he said.
