Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp have largely sold petrol, diesel and LPG below market rates since February 28, when the US-Iran war broke out. After a truce pulled benchmark Brent crude down to about $71 a barrel, the companies had hoped to recover their losses before considering any cut in pump prices.
Those hopes have faded as crude has climbed back above $90 a barrel amid renewed West Asia conflict. The companies have told the government that the losses are too large to absorb without urgent financial support, people aware of the discussions said.
The proposal will require the finance ministry’s approval before being placed before the cabinet and is likely to involve weeks or even months of inter-ministerial negotiations, the people said. For the government, which is already foregoing about ₹10 per litre in uncollected taxes on petrol and diesel, agreeing to a large compensation package could prove difficult.
Deregulation Principle
Earlier this month, oil minister Hardeep Singh Puri said the three OMCs had incurred losses of ₹74,781 crore during the April-June quarter. The final figure will become clearer as the companies begin reporting quarterly earnings this week.
The government has historically treated losses on LPG differently from those on petrol and diesel.While LPG remains a regulated fuel, petrol and diesel are officially deregulated, even though state-run OMCs have largely aligned pump prices with government expectations.
The Centre provided ₹22,000 crore in 2022 and ₹30,000 crore last year to compensate OMCs for selling LPG below cost.
However, it has been reluctant to compensate losses on petrol and diesel in recent years because doing so would undermine the principle of deregulation and could trigger similar claims from private fuel retailers.
In the February 2023 budget, the government instead proposed a ₹30,000 crore equity infusion into the OMCs after they sought compensation for petrol and diesel losses.