Oil Marketing Companies (OMCs) are commercial institutions in India primarily engaged in the downstream sector of the petroleum industry, which involves the refining, distribution, and marketing of petroleum products like petrol, diesel, and Liquefied Petroleum Gas (LPG). The three major state-run OMCs are Indian Oil Corporation (IOCL), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL).
The concept of state-controlled OMCs emerged from the nationalization of foreign oil companies in the 1970s, such as the takeover of Burmah Shell in 1976 to form Bharat Refineries Limited (later BPCL), and the nationalization of Caltex, to dismantle the foreign monopoly and conserve foreign exchange. This led to the establishment of the Administered Pricing Mechanism (APM) in 1977, which solved the problem of price volatility by compensating OMCs for their costs and guaranteeing a fixed return of approximately 12% to 15% on capital employed.
OMCs operate by procuring crude oil from upstream companies like ONGC and Oil India or through imports, refining it, and then selling it through a vast network of over 1 lakh petrol pumps, of which OMCs operate about 90%. The mechanism of pricing has undergone significant change: the APM was dismantled, and the price of petrol was made market-determined effective June 26, 2010, and diesel was completely deregulated effective October 19, 2014. However, OMCs are still compelled to sell products like PDS kerosene and domestic LPG at discounted rates, leading to "under-recoveries" which the Government of India pays.
OMCs are connected to the Ministry of Petroleum and Natural Gas (MoPNG), which oversees them. They are also regulated by the Petroleum and Natural Gas Regulatory Board (PNGRB), established under the PNGRB Act, 2006, which regulates the storage, distribution, and marketing of petroleum products. A recent change is the self-imposed freeze on retail fuel prices since April 2022, which has led OMCs to incur losses on auto fuels, unlike LPG where the government provides compensation. To manage this, OMCs have recently set the Refinery Transfer Price (RTP) below the import parity cost, effectively requiring refiners to absorb a portion of the increased crude oil costs.