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Public sector oil marketing companies (OMCs) are likely to absorb the Rs 200-per-cylinder cut in cooking gas prices announced by the government and are not expecting to be compensated by the government, at least for the time being, senior executives with the OMCs said. The three companies–Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL)–are still awaiting clarity on whether there will be any compensation at all down the line.
The OMCs on Wednesday slashed the price of liquefied petroleum gas (LPG) cylinders for all domestic LPG consumers by Rs 200 per 14.2-kg cylinder in line with the Centre’s announcement, which the government had termed as a gift on the occasion of Raksha Bandhan and Onam. However, the government has so far not clarified whether or not it plans to foot the bill for this price reduction, which will benefit over 31 crore domestic LPG consumers in the country.
This decision by the government comes ahead of Assembly elections in five states later this year and the Lok Sabha elections next year. In the run-up to the Assembly elections, the Congress has promised to provide LPG at Rs 500 per cylinder in Madhya Pradesh if voted to power. Its government in Rajasthan has already cut the effective price to Rs 500 per cylinder for poor households by providing additional subsidy support. Both these states, along with Chhattisgarh, Telangana, and Mizoram, are going to polls later this year.
“For now, there has been no talk of any compensation. The OMCs have cut the price as per the government’s directive. It is difficult to say if we will receive any compensation or subsidy support for this later,” said a senior executive with an OMC, requesting anonymity.
A senior official with another OMC concurred. “To the extent the decision to cut the price is concerned, there is absolute clarity. But will there be compensation from the government at a later date, we don’t really know at present. Maybe we will have to wait for some time to get clarity,” said the official, who also declined to be identified.
The officials said that given the strong financial health of the three companies at present, they should be able to absorb the hit rather comfortably. All three companies reported robust earnings for the April-June quarter. However, it would be a different story if they experienced the kind of stress they went through last year as energy markets turned extremely volatile in the wake of Russia’s invasion of Ukraine. An e-mail sent to the petroleum ministry seeking clarity on the issue did not elicit a response till press time.
The government stopped providing LPG subsidy in the early months of the 2020-21 fiscal, when global oil and fuel prices had crashed. Later, subsidy was brought back, but only for poor households covered in the Ujjwala scheme. The government currently provides a subsidy of Rs 200 per cylinder to Ujjwala beneficiaries by way of direct bank transfers for up to 12 refills per year.
Even as the government was not giving subsidy to non-Ujjwala consumers, it did provide a one-time grant of Rs 22,000 crore to the three OMCs last year to compensate them for selling LPG at a loss for the previous two years, which had resulted in accumulated losses of Rs 28,000 crore.
The grant came at a time when the OMCs were grappling with significant losses, particularly in the fuel retail segment. However, the companies have now largely recovered from last year’s losses and industry insiders do not expect the government to be as eager to help the companies through a special financial grant.
