Cabinet approves Rs 30,000 crore as compensation to OMCs for LPG under-recovery

Cabinet approves Rs 30,000 crore as compensation to OMCs for LPG under-recovery

The Union Cabinet, chaired by the Prime Minister Narendra Modi, has approved compensation amounting to Rs 30,000 crore to the three PSU Oil Marketing Companies (IOCL, BPCL & HPCL) for the under-recoveries incurred on sale of domestic LPG. "The distribution of the compensation within the OMCs will be done by the Ministry of Petroleum and Natural Gas. The compensation will be paid in twelve tranches," said government in a statement.

"The international prices of LPG remained at high levels during 2024-25 and continue to remain high. However, to insulate consumers from fluctuations in international LPG prices, the increase in cost was not passed on to consumers of domestic LPG which led to significant losses for the three OMCs. Despite the losses, the Public Sector Oil Marketing Companies have ensured continuous supplies of domestic LPG in the country at affordable prices," the government added.

This compensation will allow the OMCs to continue meeting their critical requirements such as crude and LPG procurement, servicing of debt, and sustaining their capital expenditure, thereby ensuring uninterrupted supply of LPG cylinders to households across the country, said government.

In the fiscal 2024-25, the state-run oil marketing companies (OMCs) reported combined under-recovery of Rs 41,266.91 crore on sale of LPG cylinders.

Indian Oil Corporation Limited (IOCL) reported LPG under-recovery of Rs 19,926 crore in the year ended March 31, 2025, according to an exchange filing. LPG under-recovery of Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) for FY25 came in at Rs 10,446.38 crore and Rs 10,894.53 crore, respectively.

After the union budget failed to address the ask of the oil companies in February, senior oil ministry officials had told Moneycontrol that compensation for LPG under-recovery could be taken up afterwards by the union cabinet.

The last such compensation was granted by the government in October 2022, when the centre had announced a payment of Rs 22,000 crore for state-run OMCs, for a cumulative loss of Rs 28,000 crore that they had incurred then.

Indian state-run OMCs’ margins were hit in FY25 as well as the companies kept retail cylinder prices unchanged for consumers despite high global prices of the fuel. To be sure, India is dependent on imports for almost half of its LPG requirements.

The OMCs have been absorbing the price difference between retail cylinder costs and high international market prices. LPG cylinder prices still remain largely regulated in India.

To shore up revenue for state-run OMCs going ahead, the central government in April 2025 increased the excise duty on both petrol and diesel by Rs 2 per litre. Minister of Petroleum and Natural Gas Hardeep Singh Puri had said that the fund would be used to compensate OMCs for the losses they incur on sale of LPG cylinders.