Government to give Rs 35,000 crore LPG subsidy to IOC, BPCL, HPCL

The government is likely to provide a subsidy of Rs 35,000 crore to state-owned Indian Oil Corporation Ltd (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) to make up for losses they incurred on selling the fuel this fiscal, sources said.

The three fuel retailers have kept the price of domestic LPG unchanged at Rs 803 per 14.2-kg cylinder since March 2024 despite a rise in input raw material cost. This led to under-recoveries on LPG sales, and the resultant drastic fall in their earnings in the April-September (first half of current 2024-25 fiscal year).

The total under-recovery on LPG sales for the industry in the current fiscal is estimated at about Rs 40,500 crore. Against this, the government is likely to provide Rs 35,000 crore in total spread over two financial years, two sources with knowledge of the matter said.

IOC, BPCL and HPCL are likely to get Rs 10,000 crore during the current 2024-25 fiscal and the remaining Rs 25,000 crore in the next, they said, adding that provision of the subsidy is likely to be made in the Union Budget for 2025-26 that Finance Minister Nirmala Sitharaman will present on February 1.

Sources said there is an under-recovery (or loss) of about Rs 240 per 14.2-kg cylinder that the state-owned fuel retailers sell to domestic households at the current price of Rs 803.

Prices of domestic LPG are regulated by government to insulate domestic households from high market rates. Regulated prices are lower than the Saudi CP - the international benchmark used to price domestic LPG. This is because domestic LPG production is not sufficient to meet the local demand and the fuel has to be imported.

This leads to under-recoveries and consequent losses to the fuel retailers.

Government from time to time compensates IOC, BPCL and HPCL for these losses. The three were previously paid Rs 22,000 crore compensation for 2021-22 and 2022-23 fiscal year. This was against Rs 28,249 crore of under-recovery.

Of the Rs 40,500 crore under-recovery estimated for the current fiscal, IOC is likely to account for Rs 19,550 crore, HPCL Rs 10,570 crore and BPCL Rs 10,400 crore, according to sources.
Domestic LPG prices have remained unchanged since March 9, 2024, when they were cut by Rs 100 per 14.2-kg cylinder just before general elections were announced.

Sources said international LPG prices have remained moderately high in 2024, even during summers, leading to under-recoveries. The prices are expected to remain elevated during winter months.

To make up for the difference between cost and retail selling price, a Rs 35,000 crore subsidy is likely to be provided, they said, adding that the payout would be together with taxes.

The Directorate General of Goods and Services Tax Intelligence (DGGI) had raised a GST demand on the previously paid under recoveries of Rs 22,000 crore to the three retailers. And to ensure full payout accrues to the three without any deductions, it is likely that the government may provide for any additional tax liability.