State-owned oil companies in India are facing substantial financial strain as they work to shield consumers from the repercussions of the global energy crisis. These companies are incurring losses of approximately Rs 1,600-1,700 crore daily, which has accumulated to over Rs 1 lakh crore in the past 10 weeks. The financial burden raises concerns about the sustainability of this approach and its potential long-term consequences.
Since the onset of conflict in the Middle East, Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) have maintained a steady supply of petrol, diesel, and cooking gas (LPG) at prices significantly below market rates. This is in contrast to other countries where energy systems have implemented rationing or passed on steep price increases to consumers. Information reaching TahirRihat.com suggests that, this intervention has led to unprecedented under-recoveries for the OMCs, reflecting the difference between the cost of supply and the retail selling price.
According to sources with direct knowledge of the matter, the combined daily under-recovery for petrol, diesel, and LPG ranges from Rs 1,600 crore to Rs 1,700 crore, resulting in a total under-recovery exceeding Rs 1 lakh crore over the past 10 weeks. Despite a 50 percent increase in the cost of crude oil, petrol and diesel prices have remained fixed at Rs 94.77 per liter and Rs 87.67 per liter, respectively, reflecting rates from two years ago. Although domestic LPG prices were increased by Rs 60 per cylinder in March, they continue to be priced below the actual cost.
The revenue generated from fuel sales is the primary source of income for OMCs, which they use to purchase crude oil, develop processing infrastructure, and establish distribution networks. While the OMCs have successfully insulated the Indian market for the past 10 weeks, the financial cost is now apparent. Sources indicate that the companies may need to increase borrowing to meet working capital requirements for crude oil purchases.
A source noted that, prolonged high crude oil prices could necessitate increased working capital borrowings and a reassessment of capital expenditure timelines for OMCs. However, investments in refining expansion, energy security infrastructure, ethanol blending, biofuels, and transition fuels remain national priorities and are expected to proceed with government support. Another source added that, financially stable OMCs are crucial for India’s energy security, supply continuity, infrastructure expansion, and economic stability, and sustained pressure on their balance sheets could hinder future investments in refining, pipelines, strategic reserves, clean fuels, and energy transition initiatives.
The decision to raise petrol and diesel prices is now a political consideration for the government. A separate source stated that a fuel price hike has become inevitable, but the government must determine the timing and magnitude of the increase. While countries such as Japan and the United Kingdom have increased petrol and diesel prices by up to 30 percent since the start of the conflict in West Asia, fuel prices in India have remained at two-year-old levels.
This situation persists despite the conflict disrupting India’s imports of 40 percent of crude oil, which is the raw material for petrol and diesel, 90 percent of cooking gas LPG, and 65 percent of natural gas, used for electricity generation, fertilizer production, CNG conversion, and household cooking. The OMCs have worked to maintain supply lines even during periods of increased demand due to panic buying. Government intervention has included reductions in excise duties to partially offset the increased fuel costs. The special additional excise duty on petrol was reduced from Rs 13 to Rs 3 per liter, while the excise duty on diesel was reduced from Rs 10 to zero per liter.
Sources said that the government’s excise duty reductions have resulted in a monthly loss of Rs 14,000 crore. The situation requires careful consideration of the economic and political factors involved.
Tahir Rihat (also known as Tahir Bilal) is an independent journalist, activist, and digital media professional from the Chenab Valley of Jammu and Kashmir, India. He is best known for his work as the Online Editor at The Chenab Times.
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