District Daily News

Government Cuts Budget Support For Oil Companies and Postpones Filling Strategic Oil Reserves

<p>According to the finance ministry, the government has cut the amount of equity infusion it provides to state-owned gasoline retailers by half, to Rs 15,000 crore, in order to encourage these businesses’ investments in energy transformation projects.</p>
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<p>In February of last year, Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) announced an equity infusion of Rs 30,000 crore to support the energy transition plans of these three state-owned firms. This announcement was made during the presentation of the annual Budget for the fiscal year 2023–24 (April 2023 to March 2024) by Finance Minister Nirmala Sitharaman.</p>
<p>In addition, she had suggested spending Rs 5,000 crore to purchase crude oil for the nation’s strategically located underground storage facilities in Visakhapatnam, Andhra Pradesh, and Mangalore, Karnataka, which are designed to withstand supply interruptions. According to the finance ministry, this proposal has also been postponed in light of recent developments in the oil markets.</p>
<p>The three fuel retailers received the only equity support, despite the fact that other state-owned oil companies, like Oil and Natural Gas Corporation (ONGC) and GAIL (India) Ltd., have also committed billions of dollars to achieve net zero carbon emissions. These retailers suffered significant losses in 2022 when they maintained retail prices for gasoline, diesel, and cooking gas (LPG), even though the price of crude oil, the raw material, had increased due to Russia’s invasion of Ukraine.</p>
<p>The finance ministry announced the decrease of equity assistance and the postponement of filling strategic reserves in a post on X that detailed the results of the budget decisions.</p>
<p>“Priority capital investments towards energy transition and net zero objectives, as well as energy security by the Ministry of Petroleum and Natural Gas, are provided for by the Budget (for 2023–34),” the statement said.</p>
<p>Of this, Rs 30,000 crore went toward funding green energy and net-zero efforts for oil marketing firms IOC, BPCL, and HPCL; the remaining amount was used to buy crude oil for caverns in Mangalore and Visakhapatnam.</p>
<p>“A maximum of Rs 15,000 crore might be granted for equity infusion into OMCs in FY 2023–24 during the Expenditure Finance Committee meeting held on November 30, 2023,” the finance ministry said, without providing an explanation for the choice.</p>
<p>According to industry insiders, the decision could have been influenced by the three companies’ increased profitability in the current fiscal year, which helped them offset some of their losses from the previous fiscal year, which ran from April 2022 to March 2023.</p>
<p>Despite the softening crude oil prices, the three are earning strong profits this year as the retail selling price freeze continues into the 21st month.</p>
<p>The Cabinet Committee on Economic Affairs’ (CCEA) approval is being requested in accordance with the EFC’s recommendations. The Ministry of Petroleum and Natural Gas (MoPNG) is now working on the draft note for the approval of the CCEA, the ministry said.</p>
<p>Last year, the boards of BPCL and IOC authorized rights offerings with a maximum amount of Rs 18,000 crore and Rs 22,000 crore, respectively. The rights problem was to be addressed by the government.</p>
<p>According to sources, the two companies want to finish them by March 31 and cut the rights issue in half.</p>
<p>The government would not be directly investing in HPCL since it sold ONGC the bulk of its shares in the business in 2018. Most likely, the injection would come via ONGC, which will give the government privileged access to its share offering.</p>
<p>By 2040, BPCL, HPCL, and IOC want to cease producing net carbon emissions from their activities; IOC wants to do the same by 2046.</p>
<p>“Department of Expenditure, Ministry of Finance, has recommended that the proposal for filling of crude oil be deferred keeping in mind the emerging trends in oil markets,” the finance ministry said about the intention to acquire crude oil for strategic storage.</p>
<p>According to sources, the government may have prioritized expenditure in order to keep its budget deficit to 5.9% of GDP for the fiscal year that ends on March 31. This may have led to the reduction of the equity injection and the postponement of the filing of crude oil.</p>
<p>This occurs when the government is having trouble raising enough money, especially via the sale of shares or divestment from PSUs.</p>