Government halves Budget support to oil firms, defers filling strategic oil reserves

The government has halved the amount of equity infusion in state-owned fuel retailers to Rs 15,000 crore for supporting their investments in energy transition projects, the finance ministry has said.

Finance Minister Nirmala Sitharaman had on February 1 last year while presenting the annual Budget for 2023-24 fiscal (April 2023 to March 2024) announced equity infusion of Rs 30,000 crore in Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) to support the three state-owned firms' energy transition plans.

Alongside, she had also proposed Rs 5,000 crore for buying crude oil to fill strategic underground storages at Mangalore in Karnataka and Visakhapatnam in Andhra Pradesh that India has built to guard against any supply disruptions. That plan has also been deferred in view of emerging trends in oil markets, the finance ministry said.

While other state-owned oil companies such as Oil and Natural Gas Corporation (ONGC) and GAIL (India) Ltd too have lined up billions of dollars of investment to achieve net zero carbon emissions, the equity support was limited to the three fuel retailers, who had suffered huge losses in 2022 when they held retail petrol, diesel and cooking gas (LPG) prices despite a spike in raw material (crude oil) prices following Russia's invasion of Ukraine.

The finance ministry in a post on X detailing the outcome of the budget announcements, informed about the halving of equity support and deferring of filling strategic reserves."The Budget (for 2023-34) provides Rs 35,000 crore for priority capital investments towards energy transition and net zero objectives, and energy security by the Ministry of Petroleum and Natural Gas," it said.

Of this, Rs 30,000 crore was towards capital support to oil marketing companies IOC, BPCL and HPCL for green energy and net zero initiatives, and the remaining for purchase of crude oil for caverns at Mangalore and Visakhapatnam, it said."During the Expenditure Finance Committee meeting held on November 30, 2023, it was decided a maximum of Rs 15,000 crore could be provided for equity infusion into OMCs in FY 2023-24," the finance ministry said without detailing the reasons for the decision.

Industry sources said the decision may be linked to a boost in profitability of the three firms in the current fiscal which haspti partly covered for the losses in the previous 2022-23 (April 2022 to March 2023) fiscal. The three are making good profit this year as the freeze in retail selling prices extends into the 21st month despite crude oil prices having softened.

"Based on the recommendations of EFC, approval of the CCEA (Cabinet Committee on Economic Affairs) is being sought. The draft note for approval of CCEA is under process in MoPNG (Ministry of Petroleum and Natural Gas)," the ministry said.The board of IOC and BPCL had last year approved rights issues to raise up to Rs 22,000 crore and Rs 18,000 crore, respectively.

The government was to participate in the rights issue.Sources said the two firms plan to halve the rights issue and complete them by March 31.

In case of HPCL, the government will not make any direct equity infusion as it had sold its majority stake in the company to ONGC in 2018.

The infusion is likely to be through ONGC which will make the preferential issue of shares to the government.

BPCL and HPCL are targeting to end net carbon emission from their operations by 2040 and IOC is aiming for 2046 for the same.On plan for purchase of crude oil for strategic storage, the finance ministry said: "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."

Sources said the trimming of the equity infusion and deferment of crude oil filing may be linked to the government prioritising spending in a bid to try to limit its fiscal deficit to 5.9 per cent of GDP this fiscal year ending March 31.This comes as the government faces shortfall in revenue collections particularly from sale of stake or divestment in PSUs.