The government has no plan at present to compensate public sector oil marketing companies (OMCs) for their losses on sale of petrol, diesel, and jet fuel below market prices, a senior Petroleum Ministry official said on Monday. The comments come at a time when there is growing speculation over the possibility of an increase in fuel prices, particularly petrol and diesel.
Despite the surge in international oil and fuel prices amid the West Asia crisis, retail prices of regular petrol and diesel haven’t been hiked. In the case of ATF, or jet fuel, just about 25% of the price increase was passed on for domestic flights on April 1, although a full passthrough was done for international flights.
Consequently, public sector OMCs—Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation—are incurring heavy losses on the sale of these fuels, and have been pushing for price hikes, it is learnt.
Petrol and diesel prices have not been hiked for over four years now in India. Moreover, the timing of the current global surge in prices, which clashed with assembly elections in some states, made it politically fraught for the prices to be hiked. In the absence of price increases, the OMCs are facing significant financial burden. But the government has no proposal to extend any financial support to the companies.
“Currently there is no proposal before the Government of India to support the OMCs (for their losses on fuel sales),” Petroleum Ministry Joint Secretary Sujata Sharma said in response to a question at the inter-ministerial press briefing on the West Asia crisis. She also noted that by not hiking the prices of regular petrol and diesel, the OMCs have been contributing in keeping inflation in check.
The OMCs are also incurring heavy under-recoveries on sale of liquefied petroleum gas (LPG) to households, even as they have hiked prices of commercial and industrial LPG in line with international prices movements. But unlike petrol, diesel, and jet fuel, the government has over the past few years provided subsidy support to the OMCs for losses on domestic LPG sales, and that cannot be ruled out even this time around, industry officials said.
With the recently-held state elections having now concluded, a hike in prices of fuels like petrol, diesel, and the domestic LPG could be in the offing in the coming days or weeks, according to highly placed sources in the government. Throughout March and April, the Petroleum Ministry assured consumers that there was no proposal to hike fuel prices.
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“It is inevitable. It is only a matter of time before prices (of petrol, diesel, and domestic LPG) are hiked,” a senior government official told The Indian Express last week.
On the repeated assurances from the MoPNG that prices won’t be hiked, the official had said that these were political announcements that came in the middle of the state elections, and are definitely a constraint in raising the prices. The effort has been to hold on to the prices for as long as possible, but with no end in sight to the Strait of Hormuz closure, the status quo on prices can’t continue for long. The official didn’t elaborate on the timeline for price revisions.
Petrol is currently priced at Rs 94.77 per litre in Delhi, and diesel at Rs 87.67 per litre. Domestic LPG is priced at Rs 913 per 14.2-kg cylinder in the capital. Fuel prices vary across states due to differences in state levies.
On April 23, the Petroleum Ministry had said that the OMCs were incurring losses of around Rs 20 per litre on petrol sales and Rs 100 per litre on diesel sales. On April 1, it had said that the OMCs were incurring an under-recovery of about Rs 380 per 14.2-kg cylinder on LPG sales to households. While having acknowledged that the OMCs are also incurring losses on jet fuel sales for domestic flights, the ministry has so far not shared the extent of their under-recoveries on this fuel.
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Last month, a few reports, quoting a note by brokerage Kotak Institutional Equities, had talked about the potential hike of Rs 25-28 per litre in petrol and diesel prices once the assembly elections concluded. The final phase of voting was held on April 29. The brokerage had said that the case for a petrol and diesel price hike was strong, but the timing was driven by political considerations. The MoPNG had dismissed such reports.
Oil prices have been extremely volatile since the West Asia war began, but the petrol and diesel prices have not been hiked to protect the domestic consumer from this volatility. The Indian crude oil basket, which averaged $70 per barrel last year, averaged over $113 in April.
While the retail prices of petrol and diesel are deregulated, in practice, the government-owned OMCs—with 90% market share in fuel retail—have kept prices stable in consultation with the government. They incur heavy losses when international oil prices surge, and earn hefty profits when the prices slump. Petrol and diesel prices have been more or less frozen since April 2022.
With the effective halt in vessel movements through the Strait of Hormuz—from where one-fifth of global oil and natural gas flows usually transited—global energy supplies have been hit and prices have skyrocketed. India depends heavily on oil and gas imports to meet its energy needs, and fuel prices in the country are linked to global oil and fuel price benchmarks.
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While India has been in a comfortable position with regard to crude oil, petrol, and diesel availability, it still has to bear the brunt of high prices. In the case of LPG, apart from high prices, supplies to India have been notably hit, forcing the government to ration commercial and industrial LPG sales in order to prioritise supplies to crores of households that depend on LPG.
