Informist, Thursday, Jul. 10, 2025

--Fin min source: May compensate oil cos INR 300 bln for FY25 under-recovery

--Fin min source: Evaluating mechanism to transfer compensation to oil cos

--Fin min source: May soon decide on compensating oil cos for under-recovery

NEW DELHI – The finance ministry is likely to compensate state-run oil marketing companies around INR 300 billion for under-recoveries in 2024-25 (Apr-Mar), a senior finance ministry official said. "We have received the request and are considering it; an announcement may come soon," the official said on the condition of anonymity. Oil marketing companies suffered under-recoveries to the tune of over INR 410 billion in FY25.

"We are evaluating the proposal from all perspectives and aim to take a fair and good policy decision," the official said.

In April, Petroleum and Natural Gas Secretary Pankaj Jain had told Informist that the government will compensate the companies from the collection made from the increase of INR 2 per litre in excise duty on petrol and diesel in April. The government expects to collect around INR 320 billion from the duty increase, Jain had said. The collections will be routed through the Consolidated Fund of India and the finance ministry will oversee the transfers to the oil-marketing companies, he had said.

The above-mentioned finance ministry official said that the government is presently "working out a broadly similar mechanism" to compensate the oil companies. Following the petroleum ministry's request, the finance ministry is still working on the proposal and is looking at the modalities of the release, after which it will be escalated to the Cabinet for approval, the official added.

Oil marketing companies suffered significant liquified petroleum gas under-recoveries, primarily due to higher LPG sourcing cost as against its subsidised retail prices. In a report, CareEdge had said that under-recoveries were to the extent of INR 220 per 14.2 kg cylinder.

While this is not a direct compensation from the government for the losses of oil-marketing companies, the last such compensation was granted by the Union Cabinet in October 2022, when the Centre announced a payment of INR 220 billion for the state-run oil companies' cumulative loss of INR 280 billion.

The official added that once the funds are released to the oil marketing companies, it will be the prerogative of them on how they want to deploy the fund. "They may use it for capital expenditure or operating expenses; it will be entirely on them," the official added. End

Reported by Priyasmita Dutta

Edited by Deepshikha Bhardwaj

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