New Delhi, April 5 In a move unprecedented since the deregulation of fuel prices, Indian state-owned oil marketing companies will pay refineries a discounted price for petrol, diesel, aviation turbine fuel (ATF), and kerosene, aiming to limit mounting losses resulting from a self-imposed freeze on retail fuel prices, sources said.
On March 26, the oil marketing companies (OMCs) set prices for petroleum products at a discount of up to Rs 60 per litre compared to their import costs, according to two sources with direct knowledge of the matter. This discount, effective from March 16, will primarily affect independent refineries such as MRPL, CPCL, and HMEL.
International oil prices have risen from around USD 70 per barrel before the Middle East conflict to over USD 100, but retail petrol and diesel prices in India have remained unchanged, forcing OMCs to absorb the impact.
To address this, OMCs have decided to apply a discount on the refinery transfer price (RTP) – the internal price at which refineries sell fuel to marketing arms – to effectively pay refineries less than the import-parity cost of the fuels like petrol and diesel.
For the second half of March, a discount of Rs 22,342 per kilolitre (Rs 22.34 per litre) was fixed on diesel to reduce the RTP from Rs 85,349 per kl to Rs 63,007 per kl.
For the first fortnight of April, the discount on diesel has been set at Rs 60,239 per kl to lower the RTP from Rs 146,243 per kl to Rs 86,004 per kl.
For ATF, the RTP has been reduced to Rs 76,923 per kl from Rs 127,486 per kl after a discount of Rs 50,564 per kl.
The RTP for kerosene, after a discount of Rs 46,311 per kl, has been fixed at Rs 77,534 per kl from Rs 123,845 per kl, they said.
Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp have not yet responded to requests for comment.
This discounted pricing would prevent refineries from fully passing on higher crude costs through the RTP, forcing them to absorb a portion of the impact of elevated global oil prices.
While integrated state-owned firms such as Indian Oil Corporation Ltd (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) can offset a portion of the impact between refining and marketing operations, standalone refineries that rely on market-linked RTP for revenue could face greater margin pressures, they added.
Mangalore Refinery and Petrochemicals Ltd (MRPL), Chennai Petroleum Corporation Ltd (CPCL), and HPCL-Mittal Energy Ltd (HMEL) – which have limited retail operations and sell most of the petrol and diesel produced to the three OMCs – would be most affected by this move.
These changes would also impact refineries like Nayara Energy and Reliance Industries Ltd if the discount on RTP is also implemented for private refineries, sources said.
The two private refineries sell a large portion of their production of petrol and diesel to OMCs, who own and operate approximately 90% of the over 1 lakh petrol pumps in the country.
Traditionally, petrol and diesel in India have been priced on an import parity basis, meaning the fuels are valued as if they were imported, even though the primary product brought into the country is crude oil, which is then refined locally. Refinery transfers of these products to oil marketing companies were based on import parity price (IPP) until June 2006, after which the government adopted trade parity pricing (TPP) – a benchmark that assigns 80% weight to import parity price and 20% to export parity price.
This pricing protected refinery margins, particularly of standalone refiners who didn't have the cushion of marketing margins on petrol and diesel, whose pricing was deregulated by the government in 2010 and 2014 respectively.
Despite being freed, petrol and diesel prices have not exactly moved in line with cost and have been frozen since April 2022, with OMCs absorbing losses when crude oil prices rise and making significant profits when rates fall.
The discount on RTP comes as under-recoveries or losses on petrol and diesel have widened, sources said, adding that unlike cooking gas LPG, the government does not compensate OMCs for losses on auto fuels.
The Ministry of Petroleum and Natural Gas in a post on X on April 1 had stated that, "With global petroleum prices up by up to 100 per cent in the last one month, PSU OMCs are incurring under-recoveries of Rs 24.40 per litre on petrol and Rs 104.99 per litre on diesel at retail selling price (RSP) level as on 01.04.2026."
OMCs feel that implementing this RTP discount would effectively distribute the financial burden across the refining ecosystem, but analysts say it could disproportionately affect independent refiners with limited downstream marketing exposure.
Furthermore, it will distort the commitment to market prices for both standalone and private refiners, sources added.
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