The government may give Rs 35,000 crore LPG subsidy to IOC, BPCL, HPCL, and know details.

Sources said that the government may give a subsidy of Rs 35,000 crore to public sector Indian Oil Corporation Limited (IOC), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL) to compensate for the loss incurred on selling fuel this financial year.

The three fuel retailers have kept the price of domestic LPG unchanged at Rs 803 per 14.2 kg cylinder from March 2024 despite the increase in raw material costs. This led to under-recovery on LPG sales and consequently a sharp decline in their income in April-September (first half of the current financial year 2024-25). The total under-recovery on LPG sales for the industry in the current financial year is estimated to be around Rs 40,500 crore.

Against this, the government is likely to provide a total of Rs 35,000 crore over two financial years, two sources familiar with the matter said. IOC, BPCL and HPCL are likely to get Rs 10,000 crore during the current financial year 2024-25 and the remaining Rs 25,000 crore in the next fiscal, they said. The subsidy provision is likely to be made in the Union Budget for 2025-26, which Finance Minister Nirmala Sitharaman will present on February 1, they said.

State-owned fuel retailers are making an under-recovery (or loss) of about Rs 240 per 14.2 kg cylinder to domestic households at the current price of Rs 803, sources said.

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

This leads to under-recovery and resulting in losses to fuel retailers.

The government compensates IOC, BPCL and HPCL from time to time for these losses. The three were earlier compensated Rs 22,000 crore for the 2021-22 and 2022-23 financial years. This was against an under-recovery of Rs 28,249 crore. According to sources, out of the under-recovery of Rs 40,500 crore estimated for the current financial year, IOC is likely to be Rs 19,550 crore, HPCL Rs 10,570 crore and BPCL Rs 10,400 crore.

Domestic LPG prices have remained unchanged since March 9, 2024, when a 14.2-kg cylinder was cut by Rs 100 just before the general elections were announced. International LPG prices are likely to remain moderately high in 2024, even during summers, leading to under-recovery, sources said. Prices are expected to remain high during the winter months. A subsidy of Rs 35,000 crore is likely to be provided to meet the difference between cost and retail selling price, they said, adding that the payment will be made along with taxes.

The Directorate General of Goods and Services Tax Intelligence (DGGI) had raised GST demands on the under-recovery of Rs 22,000 crore already paid to the three retailers and to ensure that the three get full payment without any deduction, it is likely that the government may make provision for any additional tax liability.