IOCL, HPCL And BPCL Likely To Get Rs 35,000 Crore Subsidy For LPG Losses

The government is expected to grant a Rs 35,000 crore subsidy to state-owned fuel retailers Indian Oil Corporation Ltd (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) to offset losses incurred from selling domestic LPG at regulated prices.

The three companies have kept domestic LPG prices unchanged at Rs 803 per 14.2-kg cylinder since March 2024, despite rising input costs.

This price freeze has resulted in significant under-recoveries, with the total industry loss estimated at Rs 40,500 crore for the current fiscal year.

The subsidy will reportedly be disbursed in two phases: Rs 10,000 crore in the current fiscal year (2024-25) and Rs 25,000 crore in the next fiscal year.

The provision for this subsidy is likely to be included in the Union Budget for 2025-26, which Finance Minister Nirmala Sitharaman will present on 1 February.

“There is an under-recovery of about Rs 240 per 14.2-kg cylinder that the state-owned fuel retailers sell to domestic households at the current price of Rs 803,” sources were quoted as saying in a PTI report.

Domestic LPG prices in India are regulated by the government to shield households from high international market rates.

These regulated prices are lower than the Saudi Contract Price (CP), the global benchmark for LPG pricing.

Since domestic LPG production falls short of demand, imports are necessary, leading to under-recoveries and losses for fuel retailers.

In the past, the government compensated IOC, BPCL, and HPCL with Rs 22,000 crore for under-recoveries during the 2021-22 and 2022-23 fiscal years, against total losses of Rs 28,249 crore.

For the current fiscal, IOC is expected to bear Rs 19,550 crore of the estimated under-recovery, while HPCL and BPCL will account for Rs 10,570 crore and Rs 10,400 crore, respectively.

International LPG prices have remained high throughout 2024, even during typically low-demand summer months, further exacerbating under-recoveries.

To ensure the subsidy fully compensates the retailers, the government may also account for additional tax liabilities, following a GST demand raised by the Directorate General of Goods and Services Tax Intelligence (DGGI) on the previously paid Rs 22,000 crore.

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