Capital infusion in OMCS may be halved to Rs 15,000 crore

Capital infusion in OMCS may be halved to Rs 15,000 crore

Capital infusion in state-run oil marketing companies (OMCs) may be halved to around Rs 15,000 crore from Rs 30,000 crore earmarked in the budget estimate for 2023-24, given their improved finances, sources told FE.

Robust profits in the first half of the current financial year on the back of subdued crude oil prices enabled these firms to offset the losses incurred in the corresponding period of the previous fiscal.

“Crude prices, which declined to a comfort level for India in the initial months of FY24 before reversing, has thankfully again moderated after a few months,” an official said.

OMCs are expected to continue making profit so far as oil price remains below $85 a barrel, analysts have said. Due to 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 averaged $74-75/barrel in May and June 2023, $80.37 in July, before rising to $93.54 in September. It has since moderated to $90.08 in October, $83.46 in November and $77.42 in December.

Retail fuel prices in India have been frozen since May 2022. However, this price control has been during both rising and falling crude prices, allowing OMCs to recoup losses during periods of high crude prices.

The official said the government was conscious of the requirements of the OMCs, which have undertaken massive capex in the past several years to add new capacity and invest in new technology.

In the Budget 2023-24 presented on February 1, the government announced Rs 30,000 crore equity investment plan for the three OMCs —IOC, BPCL and HPCL — towards energy transition and net-zero objectives. While the equity infusion in IOC and BPCL would be via rights issues, the capital infusion to HPCL would be through its parent ONGC. The government could infuse equity through preferential allotment/rights issues in ONGC, which would replicate that in HPCL. In the capital infusion, IOC could have a larger share, followed by BPCL and HPCL.

State-run oil firms not only pay high dividends but are also major investors. In November-December 2023, IOC paid a dividend tranche of Rs 3,636 crore to the Centre while BPCL paid Rs 2,413 crore.

IOC has achieved a capex of Rs 23,468 crore or 77% of its annual target of Rs 30,395 crore in April-November of FY24. IOC is expanding its refining capacity and investing in hydrogen plants at several locations in the country. BPCL’s capex stood at Rs 6,746 crore or 67% of its FY24 target while HPCL has achieved Rs 8,763 crore or 86% of its annual target.