OMCs to get compensation for ₹30,000 crore LPG under-recovery in FY26

Petroleum Ministry officials say long-term solutions are needed as global LPG prices rise and subsidy burdens on OMCs become increasingly unsustainable

The central government has promised that it will compensate oil marketing companies (OMCs) for the ₹30,000 crore under-recovery they continue to face in the sale of Liquefied Petroleum Gas (LPG) in the ongoing financial year 2025-26 (FY26), officials at two OMCs said.

 

On an industry-wide basis, OMCs are expected to report ₹30,000 crore of under-recovery in FY26, Indian Oil Corporation Ltd (IOCL) officials had said last week. The largest among the three public sector OMCs, IOCL had an under-recovery of ₹19,000 crore for the sale of LPG for FY25. OMCs have been absorbing the price difference between domestic LPG rates and international costs as retail LPG cylinder prices remain regulated.

 

While the ₹50 hike in LPG prices announced by the Centre last month has shrunk the under-recovery by ₹10,000 crore, the rest of the amount will be taken care of by the government before the end of FY26, officials said. OMCs had incurred losses worth over ₹41,338 crore in FY25, according to official figures.

 

This was blamed on the international benchmark for LPG, the Saudi CP, spiking to high levels as a result of trade war-induced volatility. The average Saudi CP price went up to $712 per tonne from $415 per tonne between FY21 and FY23, one of the officials pointed out. 

 

Domestic compulsions

 

India imports more than 60 per cent of its domestic consumption of LPG, whose prices are linked to that in the international market. As a result, while the average Saudi CP rose by 63 per cent to $629 per tonne between July 2023 and February 2025, the effective price for households covered under the flagship Pradhan Mantri Ujjwala Yojana (PMUY) was reduced by 44 per cent over the same period, the government had earlier said.

 

Introduced back in May 2016 as a flagship scheme, it has the objective to make clean cooking fuel such as LPG available to rural and deprived households, which were otherwise using traditional cooking fuels like firewood, coal, and cow-dung cakes. The scheme had 103.3 million beneficiaries as of March, which had led to national LPG coverage soaring to 107 per cent. While the growth in PMUY users has stabilised with most households covered, country-level demand growth for LPG is only expected to stop in coming years, OMC officials said.

 

Petroleum ministry officials said a further increase in PMUY prices is not expected in the short term. Therefore, it is in discussions with the finance ministry to find ways to compensate the OMCs. A direct capital transfer such as back in 2022, when the Cabinet had approved a ₹22,000 crore one-time fund for OMCs, is the likeliest option. But the government is not keen on it, they said.

 

"This is becoming a recurring issue. Simply, creating funds to compensate OMCs every year is unsustainable. A realistically long-term solution is needed," an official said.

 

LPG prices are expected to remain elevated in the foreseeable future, with China, a major importer of American LPG, redirecting its purchases from the US to West Asia.

 

Meanwhile, US exports are increasing to Europe and other Asian countries, including India and Japan. This realignment is contributing to lower LPG prices in the US and Europe, while increasing demand and prices in West Asia and Asia.