OMCs get ₹22,000 cr in  LPG compensation

The Union cabinet on Wednesday approved a one-time payment of ₹22,000 crore to oil marketing companies (OMCs) to compensate them for their losses in selling cooking gas below cost. The grant will be distributed among Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL).

India imports about half the cooking gas it uses. The Saudi contract price, the import benchmark for liquified petroleum gas (LPG) in India, has surged fourfold in the past two years, Union oil minister Hardeep Singh Puri said on 9 September. The one-time grant will help OMCs ensure unhindered domestic supplies of LPG.

Between June 2020 and June 2022, international prices of LPG rose by around 300%; however, domestic LPG prices were raised by only 72% during this period to insulate consumers from price fluctuations, an official statement said. This, however, led to significant losses for the three firms.

“Despite these losses, the three PSU OMCs have ensured continuous supplies of this essential cooking fuel in the country. The government has, therefore, decided to give a one-time grant to the three PSU OMCs for these losses in domestic LPG,” it said.

IOCL, BPCL and HPCL, which supply more than 90% of India’s petroleum fuels, have suffered the worst quarterly losses in years as they absorbed record international crude prices. In the June quarter, the three OMCs posted a combined loss of ₹18,480 crore due to erosion in the marketing margin on petrol, diesel and domestic LPG. IOCL reported a loss of ₹1,995.3 crore, HPCL ₹10,196.94 crore and BPCL ₹6,290.8 crore.

The government had earmarked oil subsidies at ₹5,800 crore for FY23. The subsidy mainly provides direct benefit transfer (DBT) support to identified customers with a provision of ₹4,000 crore. The cabinet-approved compensation will go towards compensating the losses that oil companies were bearing for not pricing LPG at market rates.

The three public sector oil firms have paused daily revision of prices of auto fuel and LPG since 6 April to curb inflation, a decision that drove all of them to their deep quarterly losses. Generally, LPG or cooking gas prices were reviewed every fortnight.

In May, the government cut excise duty on petrol and diesel. However, this benefit was passed on to consumers instead of being used to offset mounting losses on fuel sales.

On 1 October, oil marketing companies cut the 19-kg commercial LPG cylinder price by ₹25.5. The cylinder now costs ₹1,859 in Delhi. However, there was no change in domestic cooking gas prices, and it continues to be sold at ₹1,053 per cylinder in Delhi.