With state-run oil marketing companies (OMCs) recouping most of the FY23 losses in the marketing margins in the current financial year by not cutting retail prices even after crude prices fell sharply, the Centre is considering scalding down the equity infusion plan for the three companies.
In the Budget 2023-24 presented on February 1, the government had announced Rs 30,000 crore equity capital investment in the three OMCs — Indian Oil Corporation (IOC), BPCL and HPCL — towards energy transition and net-zero objectives.
“I have my doubts whether support from the exchequer will be required to the extent announced in the budget. We are reassessing (the requirements),” an official aware of the matter told FE.
Following the Budget announcement, BPCL Board in June approved an Rs 18,000 crore rights issue of shares to shareholders, entailing at least Rs 9,500 crore capital infusion by the Centre for its 52.98% stake. In July, the IOC board approved a rights issue for raising Rs 22,000 crore, which requires the government to infuse at least Rs 11,330 crore for its 51.5% stake.
Usually, promoters commit to fully subscribing to their portion of the rights and the undersubscribed portion as well. The remaining amount from Rs 30,000 crore was to go to HPCL, a subsidiary of state-run upstream major ONGC, likely through a preferential allotment.
The budget allocation was based on the assessment that OMCs would have some difficulty in incurring capital expenditure because oil prices were high and they were not able to sell auto fuels at remunerative rates in FY23.
The combined loss of three state-run retailers – IOC, BPCL and HPCL for the first half of the last financial year was a whopping Rs 21,201 crore due to petrol and diesel prices freezing when global prices rose.
The government didn’t want to subsidise the OMCs but it also didn’t want their capital expenditure to suffer either, since is a thrust area to boost economic activity and growth.
“Of course, recently oil prices went up but in between, they were doing pretty well (in April-July 2023),” the official said.
Due Russia-Ukraine war, the Indian basket of crude prices shot up by an average of 18% in FY23 to $93.15/barrel compared with $79.18/barrel in FY22. The Indian basket of crude oil averaged $74-75/barrel in May and June 2023, $80/barrel in July and $86.69/barrel in August reflecting fluctuations in prices due to global developments. OMCs are expected to continue making profit till the oil price remains below $80-$85 a barrel, analysts reckon.
However, the official said no final decision on the extent of capital infusion has been taken by the government as yet even though the IOC and BPCL have announced their rights issue plans. “It is too early to say whether OMCs are doing very well. The capital infusion may also go through as per the budget plan,” the official added.
IOC has projected a capex of Rs 30,395 crore in FY24 compared with Rs 35,205 crore in FY23. BPCL’s estimated capex is Rs 10,000 crore in FY24 from Rs 11,527 crore in FY23. HPCL to invest Rs 10,210 crore in FY24 as against Rs 13,847 crore in FY23.
The share price of IOC, BPCL and HPCL fell 0.95%, 1.27% and 0.17% respectively on Friday from the previous closing price on the BSE.