Public sector oil marketing companies (OMCs) are likely to seek cash compensation from the government to cover their substantial LPG under-recoveries, according to CNBC-TV18 sources.

During the April-September period of this fiscal year, under-recoveries for LPG have surged by over 1,600% for Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL).

From ₹1,099 crore in March FY24, total under-recoveries have ballooned to ₹17,489 crore as of the end of September.

As of March 2024, BPCL had a positive recovery on LPG, while HPCL reported a minimal under-recovery of under ₹100 crore. IOC, however, recorded a significant under-recovery of ₹1,000 crore on LPG.

With LPG prices still administered, OMCs have a case to seek compensation, government sources told CNBC-TV18 .

In recent investor calls, both IOC and HPCL reiterated their expectation for government support, stating, “As LPG is a controlled product, we expect the government to compensate for under-recoveries.”

The petroleum ministry had told oil companies in April 2020 that if the market-determined price of an LPG cylinder is less than the effective cost to the consumer, OMCs will retain the difference in a separate buffer account for future adjustments.

Currently, all OMCs have a negative buffer on domestic LPG cylinders as the retail selling price/effective cost to consumer is less than the market-determined price with no pass-through of higher international LPG prices.

It remains to be seen when the government is able to take a call on this issue, as compensation will need the nod from the finance ministry and potentially approval from the Union cabinet as well.

Previously in FY23, after the Russia-Ukraine war broke out the government had done a cash compensation of ₹22,000 crore for the OMCs against their LPG under recoveries of ₹28,000 crores.