As the government invited bids for the sale of its entire 52.98 percent stake in Bharat Petroleum Corporation Limited (BPCL), sources privy to the developments told CNBC-TV18 that liquefied petroleum gas (LPG) subsidy payments to consumers will continue despite the ownership of country’s second-biggest oil reﬁner going into private hands, and the union petroleum ministry is likely to issue a clarification on this.
This means "bidders for BPCL will need to factor in government's subsidy obligation to customers," sources in the know told CNBC-TV18. Also, the petroleum ministry may clarify the subsidy mechanism and if need be, a Cabinet nod will be sought to give a stamp on the policy stance and the mechanism."
Some of the officials are of the view that the current system of cooking gas subsidies being paid by the oil marketing companies (OMCs) and government reimbursing the same may also continue and potentially interested parties in BPCL stake purchase may factor this in, as they will also get a captive market of 8 crore consumers with all the attendant assets, except the Numaligarh Refinery.
However, the timing of the petroleum ministry clarification on this is not clear yet. It may naturally come up in the queries to the government for which investors have been given four weeks or it may also be clarified at the time of inviting financial bids for BPCL divestment.
According to multiple people familiar with the development, the government said the issue of subsidy payouts to consumers has already been raised by investors at the time of BPCL roadshows.
It's worth noting that OMCs gross under-recoveries on LPG in FY19 was Rs 31,500 crore (73 percent of the total). While in FY20, almost five months of LPG subsidy payments to OMCs are likely to be rolled over. The government has estimated LPG subsidy at Rs 29,627 crore in FY20 and Rs 35,605 crore for FY21.