Hyderabad (Telangana): For households who are already burdened by rising prices of petrol, diesel and edible oils in the last couple of months, the latest back-to-back LPG price hikes have upset their budgets.
The price of an LPG refill has gone up by a whopping Rs 175 since last December. More importantly, the price was revised upwards four times in the last four weeks resulting in a rise of Rs 125 per refill since February. After the latest increase of Rs 25 on Monday, a 14.2-kg cylinder now costs Rs 819 in Delhi, up from Rs 719.
The real question now is why there is a sudden jump in prices.
But, before answering that question one needs to understand the current LPG pricing formula in the country.
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How LPG price is decided?
The price of LPG is decided based on the Import Parity Price (IPP) formula. The IPP, in turn, is determined on the basis of LPG prices in the international market, assuming that the fuel is imported into the country.
To a large extent, IPP tracks Saudi Aramco’s LPG price due to the company’s dominance in the global energy market and includes the FOB (free on board) price, ocean freight, insurance and customs duties among others.
Besides, the cost of inland freight, bottling charges, marketing costs, margins charged by the oil companies, dealer commission and the goods and services tax (GST) are taken into account to decide the final price of non-subsidised LPG cylinder.
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Why the sudden rise in LPG prices?
According to the IPP formula, it is very clear that domestic LPG prices are sensitive to the fluctuations in the global LPG prices, especially Saudi Aramco’s LPG price, and an increase in prices abroad will push the prices upwards in the country.
As per the Petroleum Planning and Analysis Cell of the Union Ministry of Petroleum and Natural Gas, Saudi Aramco’s LPG price has gone up from USD 257.33 per metric tonne in May 2020 to USD 529.80 per metric tonne in February 2021.
More than two-fold rise in the base price is primarily responsible for the latest spike in domestic LPG prices.
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