FinMin may soon finalise compensation package for oil marketing companies' losses on LPG sales
'We have received the request. It is under consideration. We are looking at the amount of under recovery and discussing the modalities for compensation,' an official source said.
The ministries are in discussions to finalise the modalities for routing the excise duty hike amount for compensating the OMCs, the official said.
After the funds are released, the official said it is up to the OMCs to decide how to deploy the funds. 'They can make use of those funds for capex or other expenses,' the source said.
It is estimated that the three OMCs incurred a cumulative loss of over Rs 41,000 crore on liquefied petroleum gas (LPG, or cooking gas) sales in 2024-25 (FY25) as they have been selling the household cooking fuel way below international prices. In April, Petroleum Secretary Pankaj Jain had said that he was hopeful that the OMCs will be compensated for their accumulated losses on LPG sales over a year or so through an appropriate mechanism by the government. Sources indicated that the Petroleum Ministry has sought support from the Finance Ministry to cover these losses. Support was also sought before the Budget for FY26, but no relief was provided at the time.
Annual petrol and diesel sales in the country stand at around 16,000 crore litres, which means that the Rs 2-per-litre increase in excise duty announced in April should lead to an additional revenue of around Rs 32,000 crore for the government on an annualised basis. The Petroleum Ministry and the OMCs expect this incremental revenue to flow back into the OMCs as government support to cover losses on LPG sales. Notably, in October 2022, the government had approved a one-time grant of Rs 22,000 crore for OMCs to partially cover their accumulated losses of around Rs 28,000 crore at the time from selling LPG at a loss in consumer interest.
According to the Petroleum Ministry's estimates, the average Saudi CP—the international benchmark for LPG pricing—had shot up to to $629 per tonne in February 2025 from $385 in July 2023. This should have ideally translated into cooking gas being retailed at Rs 1,028.50 per 14.2-kg cylinder in Delhi. But at the time, it was being sold at Rs 803. As India depends on imports to meet a bulk of its LPG demand, cooking gas prices are linked to international LPG price benchmarks. In April, along with hike in excise duty on petrol and diesel, LPG prices were hiked by Rs 50 per cylinder, to provide some relief to the OMCs on cooking gas sales.
Apart from top oil ministry officials, IOC had also expressed hope that the additional mop-up from fuel excise duty hike could help cover the OMCs' under-recovery on domestic LPG sales.
'The #ExciseDuty increase of Rs. 2 per litre on #petrol and #diesel by Central Government will not be passed on to the consumers. On one hand, this will insulate the customers from the price hike while on the other hand, the collected amount may be utilised towards under-recovery of #LPG, providing relief to Oil Marketing Companies,' IOC had posted on social media platform X on April 7.
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