The Finance Ministry is set to finalize a compensation package for state-owned oil marketing companies (OMCs) to cover their significant losses from selling cooking gas (LPG) below market rates to consumers.
Understanding the LPG Price Gap
Public sector OMCs, including Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL), have been selling LPG cylinders at prices much lower than the actual cost.
This practice is maintained in “consumer interest” to keep essential cooking fuel affordable for households. However, it leads to substantial financial losses for these companies.
Funding the Relief Package
The compensation for these losses is expected to come from the additional revenue generated by the recent excise duty hike on petrol and diesel. This hike, which took effect in April, adds Rs 2 per litre to fuel prices.
With annual petrol and diesel sales around 16,000 crore litres, this hike could generate an additional Rs 32,000 crore in government revenue annually. The Petroleum Ministry and OMCs hope this incremental revenue will be channeled back to cover LPG losses.
Mounting Losses for OMCs
It’s estimated that the three major OMCs incurred a cumulative loss of over Rs 41,000 crore on LPG sales in the current fiscal year (2024-25). This massive gap arises because India imports a large portion of its LPG, linking domestic prices to volatile international benchmarks like the Saudi CP.
For instance, the average Saudi CP for LPG rose to $629 per tonne in February 2025, from $385 in July 2023. This jump should have ideally pushed the price of a 14.2-kg cylinder in Delhi to around Rs 1,028.50. Instead, it was sold at Rs 803.
What Happens Next?
The proposal for this compensation is expected to be reviewed by the Union Cabinet soon. Once approved, the funds will be released to the OMCs, giving them flexibility to use the capital for investments (capex) or other operational expenses.
This isn’t the first time the government has stepped in. In October 2022, a one-time grant of Rs 22,000 crore was approved for OMCs to partially cover their accumulated losses of about Rs 28,000 crore at that time.
Relief for Companies and Consumers
In April, alongside the excise duty hike, LPG prices also saw a Rs 50 per cylinder increase, offering some minor relief to the OMCs. Indian Oil Corporation (IOC) publicly acknowledged the situation, stating on social media that the excise duty increase, while not passed on to consumers, could help cover LPG under-recovery.
This move highlights the government’s balancing act between managing the financial health of state-owned companies and ensuring essential commodities remain affordable for the general public.
- OMCs are incurring over Rs 41,000 crore in losses from selling LPG below cost in FY25.
- A compensation package, funded by the recent Rs 2/litre excise duty hike on petrol and diesel, is being finalized.
- The proposal will soon go before the Union Cabinet for approval.
- OMCs can use these funds for capital expenditure or other operational needs.
This strategic financial intervention aims to support India’s key oil marketing companies while continuing to subsidize a crucial household fuel for millions.
