Centre may allocate Rs 44,000 cr to oil firms to compensate for LPG losses

The central government is planning to allocate Rs 44,000 crore as compensation to oil companies for losses they have been bearing by selling LPG at below-market rates, a report said

The oil ministry is planning to allocate Rs 44,000 crore as compensation to state-run oil companies for the losses they have been bearing by selling domestic cooking gas at below-market rates, a report by The Economic Times reported, quoting people aware of the matter.

The petroleum and natural gas ministry would allocate the amount that would offset the losses of oil marketing firms on LPG sales in FY22 and FY23 and provide subsidies to Ujjwala customers this year, people aware of the development told ET. 

They added that the proposal by the oil ministry would likely be finalised soon and sent to the finance ministry. 

This comes as the rate of domestic LPG was increased by Rs 50 per cylinder again on Wednesday; in Delhi, a 14.2 kg-cylinder now costs Rs 1,053. 

In one year, the rates of a non-subsidised LPG cylinder have increased by Rs 244 or 30 per cent. While cooking gas prices have risen eight times in the last year, they have not been in sync with the cost.

The Centre stopped providing cooking gas subsidies soon after the Covid-19 pandemic outbreak. The government recently announced the resumption of subsidy for Ujjwala customers at Rs 200 per cylinder.

In FY22, the government had spent nearly Rs 200 crore on LPG subsidy and this year, it has allocated Rs 4,000 crore. 

The compensation by the central government would be a significant relief to oil companies that have been tolerating the market shocks by keeping the domestic rates of cooking gas lower than the international prices. 

The people aware of the matter told ET that the gains from the recently imposed windfall tax on oil producers and fuel exporters would likely help to raise resources for the higher cooking gas subsidy.