In a first since fuel price deregulation, state-run oil marketing companies (OMCs) have moved to pay discounted rates to refineries for petrol, diesel, aviation turbine fuel (ATF) and kerosene to limit mounting losses arising from a self-imposed freeze on retail fuel prices, sources told PTI.OMCs on March 26 fixed rates for petroleum products at discounts of up to Rs 60 per litre to their imported cost, with the revised pricing applicable from March 16. The move is expected to hit standalone refiners such as MRPL, CPCL and HMEL the most, according to people with direct knowledge of the matter, as reported PTI.
The decision comes as international crude oil prices have surged from about $70 per barrel before the Middle East conflict to over $100, while domestic petrol and diesel prices have remained unchanged, forcing OMCs to absorb the impact.With no immediate end to the conflict in sight, OMCs have opted to apply discounts on refinery transfer price (RTP) — the internal price at which refineries sell fuels to marketing arms — effectively lowering payouts to refiners below import-parity levels.For the second half of March, a discount of Rs 22,342 per kilolitre (Rs 22.34 per litre) was imposed on diesel, reducing RTP from Rs 85,349 per kl to Rs 63,007 per kl. For the first fortnight of April, the diesel discount has widened sharply to Rs 60,239 per kl, bringing RTP down from Rs 146,243 per kl to Rs 86,004 per kl.On ATF, RTP has been cut to Rs 76,923 per kl from Rs 127,486 per kl after factoring in a discount of Rs 50,564 per kl. Similarly, kerosene RTP has been reduced to Rs 77,534 per kl from Rs 123,845 per kl with a discount of Rs 46,311 per kl, sources said.Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp did not immediately respond to requests for comment.The discounted pricing prevents refiners from fully passing on higher crude costs through RTP, compelling them to absorb part of the burden from elevated global oil prices.While integrated public sector companies such as Indian Oil Corporation Ltd (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) may offset part of the impact through their combined refining and marketing operations, standalone refiners that depend on market-linked RTP for revenues are likely to face a sharper squeeze on margins.Mangalore Refinery and Petrochemicals Ltd (MRPL), Chennai Petroleum Corporation Ltd (CPCL) and HPCL-Mittal Energy Ltd (HMEL) — which have limited retail presence and sell most of their output to OMCs — are expected to be the most affected.The changes could also impact private refiners such as Nayara Energy and Reliance Industries Ltd if similar discounts are extended, as they sell a significant portion of their petrol and diesel output to OMCs, which operate about 90% of the country’s over one lakh fuel retail outlets.Traditionally, petrol and diesel pricing in India has been based on import parity, where fuels are valued as if imported, even though crude oil is refined domestically. RTP was linked to import parity price (IPP) until June 2006, after which the government adopted trade parity pricing (TPP), assigning 80% weight to import parity and 20% to export parity.This framework helped protect refinery margins, especially for standalone refiners without the cushion of marketing margins. Although petrol and diesel prices were deregulated in 2010 and 2014 respectively, retail prices have remained largely frozen since April 2022, with OMCs absorbing losses during periods of high crude prices.The current RTP discount comes as under-recoveries on petrol and diesel have widened. Unlike LPG, where the government compensates for losses, there is no such support for auto fuels.The Ministry of Petroleum and Natural Gas said in a post on X on April 1, “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 believe freezing RTP will help distribute the financial burden across the refining ecosystem. However, analysts caution that the move could disproportionately impact independent refiners with limited downstream presence and distort market-linked pricing signals, sources added.
