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Why Lack Of Government Support On LPG Loss Could Hit Oil Firms Hard
Oil marketing companies saw weaker earnings in the first quarter of fiscal 2025, mainly on the back of loss on cooking gas sales ranging from Rs 20 billion to Rs 40 billion.
At the run-rate seen in the April-June quarter, companies like Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. could record losses from liquified petroleum gas sales to the tune of Rs 80 billion to Rs 164 billion, as per NDTV Profit’s calculations.
This is why the LPG subsidy provided by the government of India in fiscal 2025 is important for the profitability of these oil companies.
Why Are Companies Incurring Losses On LPG?
Currently, LPG prices in India are subsidised to ensure affordability for domestic consumers.Oil companies like Indian Oil, Bharat Petroleum and Hindustan Petroleum not only produce their own LPG, but also import it from international sources and sell them domestically.
Thus, higher production costs, as well as import costs, exert pressure on the companies’ profitability in the segment as the domestic selling prices remain capped.
Government Support
The government of India has provided oil marketing companies one-time subsidies as a part of a buffer mechanism. In fiscal 2023, when LPG losses of companies swelled up to around Rs 250 billion in the quarter, due to rise in international LPG prices, the government of India announced a one-time budget subsidy of Rs 220 billion to cover the loss.While a similar subsidy announcement was expected in the 2024 Union Budget, no provision of the same disappointed the street.
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