The Centre has cut down equity infusion in the state-owned oil marketing companies to Rs 15,000 crore from the budget estimate of Rs 30,000 crore for the financial year 2023-24. The move is in the wake of the improvement in the finaces of these firms in recent quarters.
The ministry has recommended that the proposal of filling up of crude oil to fill strategic underground storages at Mangalore in Karnataka and Visakhapatnam in Andhra Pradesh be deferred ‘in view of emerging trends in oil markets’.
In the Budget 2023-24, the finance ministry has earmarked Rs 35,000 crore for priority capital investments towards energy transition, energy security, and attaining net-zero objectives by the Ministry of Petroleum and Natural Gas.
Of this, Rs 30,000 crore was given as capital support to oil marketing companies – IOCL, BPCL, and HPCL for green energy and net zero initiatives, and the remaining Rs 5,000 crore was reserved for purchase of crude oil for caverns at Mangalore and Visakhapatnam to safeguard country’s reserve against any supply disruptions. However, both plans have now been cut short by the finance ministry.
“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 in a post on X.
The boost in profitability of the three OMCs in the current financial year has partly offset the heavy losses made by them in FY23 when crude oil prices were high owing to the outbreak of Russia-Ukrain war.
The surge in their profits can be attributed to healthy marketing margins this year as auto fuels prices remain unchanged despite softening crude oil prices.
Detailing the outcome of filling up of strategic reserves, the 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.”
Global crude prices have followed a volatile trajectory in the first half of the current financial year owing to demand disruption by the world major consumers and then the extension of supply cuts by Russia and Saudi Arabia. The outbreak of conflict in Israel further added to the problem. However, prices seem to have moderated now but remain prone to further escalation, experts believe.
On the proposals, the ministry said, ”Based on the recommendations of EFC (Expenditure Finance Committee), approval of the CCEA (Cabinet Committee on Economic Affairs) is being sought,” the ministry said. “The draft note for approval of CCEA is under process in MoPNG (Ministry of Petroleum and Natural Gas).”
FE had last month reported that capital infusion in state-run oil marketing companies may turn out to be much less than the budgete estimate (BE) of Rs 35,000 crore in the current financial year because of the robust profits in the first half.
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% of GDP this fiscal year ending March 31, PTI had reported quoting unnamed sources.
The move also comes amidst a shortfall in revenue collections by the government particularly from sale of stake or divestment in PSUs.
The government was to participate in the rights issue of IOC and BPCL approved by their respective Board of Directors last year. The Board of both IOC and BPCL last year had approved rights issues to raise up to Rs 22,000 crore and Rs 18,000 crore respectively.
IOC has targeted to end its net carbon emission from its operations by 2046, while the other two OMCs has set 2040 as their target for the same.