Govt okays Rs 22,000 crore one-time grant for OMCs to battle losses

The Union Cabinet has approved a one-time grant amounting to Rs 22,000 crore for the three public sector oil marketing companies (OMCs).

This will help them tide over continuing losses in providing domestic liquified petroleum gas (LPG). 

The grant will be distributed among Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL).

Domestic LPG cylinders are supplied at regulated prices to consumers by the three state-owned companies.

The government has argued that even as international prices of LPG increased by 300 per cent during June 2020-June 2022, the cost increase was not fully passed on to consumers of domestic LPG.

“Accordingly, domestic LPG prices have been raised by only 72 per cent during this period. This has led to significant losses for the OMCs,” the Centre said in a release.

This bid to insulate consumers from fluctuations in international LPG prices resulted in significant losses for the OMCs.

The approval will help the three state-owned firms to continue their commitment to the “Atmanirbhar Bharat Abhiyaan. It would ensure unhindered domestic LPG supplies and support the procurement of Make-in-India products,” a statement by the Centre said.

The companies have also incurred huge losses on petrol and diesel retail sales this year and may take time to recover past losses.

In the first quarter (April-June) of the current fiscal year (FY23), the three OMCs posted a combined loss of Rs 18,480 crore. This is because their marketing margin on petrol, diesel, and domestic LPG reduced, and ultimately vanished.

The issue had been raised multiple times by petroleum and natural gas minister Hardeep Singh Puri as well. Puri stressed that OMCs need more time to recover their losses.

International crude prices have been falling for large parts of the year. The benchmark Brent crude futures has been hovering around $90-94 per barrel.

This comes even after major production cuts were announced by the Organization of the Petroleum Exporting Countries (Opec) last week. These represent much lower figures than the record $139 per barrel witnessed in March. However, the government has not yet raised retail prices of petrol or diesel.

MOUNTING LOSSES

• OMCs supply domestic LPG at regulated prices to consumers

• Govt says global LPG prices rose by 300% during June 2020-June 2022

• But Indian prices rose only 72% as govt didn't pass on burden to consumers

• The three OMCs posted a combined loss of Rs 18,480 cr in Q1 of FY23