Govt may have to eventually decide how long OMCs can keep incurring losses: Puri

New Delhi: India's state-run oil marketing companies (OMCs) have been incurring significant losses by selling petrol, diesel, and gaseous fuels below cost amid a surge in international crude prices, and the government will eventually have to decide how long this situation can continue, petroleum minister Hardeep Singh Puri said on Tuesday.

He also sought to dispel the assumption that the government had so far not raised fuel prices to prevent a political backlash during the recent state polls, saying that elections and fuel price revisions were not related.

Addressing the annual general meeting of industry lobby CII, Puri said that oil marketing companies were losing ₹1,000 crore a day due to stagnant pump prices despite a sharp rise in international crude oil and natural gas prices. He also said that given the massive supply chain disruption due to the West Asia war and the blockade of the Strait of Hormuz, India will have to stock up more of crude oil, liquefied natural gas (LNG) and liquefied petroleum gas (LPG).

To a question of the how long the OMCs can endure the losses, he said: “How long will the oil companies be able to take it? Frankly that's something that worries me. I mean there have been times when the oil companies have done really well.”

But at current rate, this one quarter (April-June) of loss may wipe out fuel retailers' last year's entire profit after tax, Puri added. "These (OMCs) are good corporate citizens. They are taking a loss in order for the consumer to be insulated."

“How long can this happen? At some stage, the government will have to a view on that,” he added.

Puri had recently tweeted that under-recoveries—the gap between cost and retail price—for OMCs in the ongoing June quarter are expected to surge to ₹2 trillion, and that their net quarterly losses are expected to be around ₹1 trillion.

"People said straight after elections prices will be raised. How many elections have happened in the last four years?" he asked, stressing that elections and fuel price revisions were "unrelated".

His comments come amid growing speculation that petrol and diesel prices, which have remained unchanged since March 2024, may be increased soon due to high cost of crude oil.

War impact

India, which depends on crude imports for 90% of its requirement, has been impacted severely due to the blockade of the Strait of Hormuz, a key waterway through which a fifth of global oil and liquefied natural gas (LNG) passes. The blockade has impacted the supply of crude, LNG and liquefied petroleum gas (LPG) for more than 75 days.

In the past two days, Prime Minister Narendra Modi has urged citizens to reduce the consumption of transport fuel and curb gold purchases for a year in order to help save precious foreign exchange.

Noting that the prime minister's appeal is aimed at easing the country's financial burden, Puri assured that there is no shortage of petrol and diesel in the country, and added that LPG supply, which was impacted the most, has seen production increase to 54,000 tonnes in a day from the pre-war levels of around 35,000 tonnes. He said that the country has 60 days of crude reserves.

“We have 60 days of LNG and 45 days of LPG,” he added.

Acknowledging the need to increase the stock of essential fuels in the country, he said that the time has come to stock up more of crude oil, LNG and LPG. Currently, India has a strategic reserve capacity of 5.3 million tonnes. Modi informed the Lok Sabha in March that India is working on building 6.5 million tonnes of additional crude reserves.

The government had also informed Parliament in March that of the total capacity of 5.33 million tonnes of strategic crude oil reserves at three locations in Andhra Pradesh and Karnataka, about 3.37 million tonnes is currently available that can act as buffer for short-term supply shocks. This is about 64 % of the total storage capacity.

Further, Mint earlier reported that the government is looking at scaling up LPG storage capacities in the country and making it mandatory for oil marketing companies to hold minimum kitchen gas reserves.