Govt Planning To Provide Rs 20,000 Crore Lifeline To Indian Oil Corp, HPCL & BPCL As Losses Soar

The Indian government plans to pay about Rs 20,000 crore ($2.5 billion) to the state-run fuel retailers, such as Indian Oil Corp, HPCL (Hindustan Petroleum Corporation Limited) and BPCL (Bharat Petroleum Corporation Limited), to partly compensate them for losses and keep a check on cooking gas prices, as per Bloomberg report.

The oil ministry had sought a compensation of Rs 28,000 crore, but the finance ministry is agreeing to only about a 200 billion (20,000 crore) cash payout. The talks are at an advanced stage but a final decision is yet to be taken, people familiar with the matter reportedly said.

The three biggest state-run retailers, which together supply over 90% of India¡¯s petroleum fuels, have suffered the worst quarterly losses in years by absorbing record international crude prices. While the Rs 20,000 crore handout could ease the three fuel giants¡¯ pain, it would add pressure to the government¡¯s coffers that are already strained by tax cuts on fuels and a higher fertiliser subsidy to tackle mounting inflationary pressures.

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Also Read: Earlier, the government had earmarked oil subsidy at Rs 5,800 crore for the fiscal year ending March 2022, while fertilizer subsidy was pegged at Rs 1.05 trillion, as per the report.

These refining-cum-fuel retailing companies, which use more than 85% of imported oil, benchmarked the fuels they produce to international prices. Those prices shot up after a global recovery in demand coincided with reduced fuel-making capacity in the US and fewer exports from Russia.

State oil companies are obligated to buy crude at international prices and sell locally in a price-sensitive market, while private players such as Reliance Industries Ltd. have the flexibility to tap on stronger fuel export markets, the Bloomberg report mentioned.

303% Rise In Benchmark Price

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India imports about half of its liquefied petroleum gas, generally used as cooking fuel. The price of Saudi contract price, the import benchmark for LPG in India, has increased 303% in the past two years, while the retail price in Delhi has increased by 28%, India¡¯s Oil Minister Hardeep Singh Puri said last week on September 9th 2022.

The companies have also been holding down pump prices of gasoline and diesel since early April to curb accelerating inflation.

The oil companies will require some intervention either through price increases or government compensation to cover sustained losses, Bharat Petroleum Chairman Arun Kumar Singh had reportedly said last month.

Also Read: Tata Sons Planning To Raise $4 Billion Capital For Air India

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