No loan support to OMCs, finmin for equity route

No loan support to OMCs, finmin for equity route

The finance ministry is unlikely to accept state-run oil marketing companies’ (OMCs) demand for either grant or loan route for the promised Rs 30,000 crore government capital support to them in the current financial year . The entire support, which is aimed at boosting their ability to invest in energy transition and clean technology projects, will be in the form of equity, a senior official told FE.

“Even though no final decision has been taken yet, it may not be a loan, but an equity infusion. If the government invests, it must get equity,” he said.

In the Budget 2023-24 presented on February 1, the government had said that the proposed equity capital investment in OMCs was towards energy transition and net-zero objectives.

Following the announcement, Indian Oil, BPCL and HPCL have approached the petroleum ministry suggesting capital support through loans as an alternative, keeping in mind the market sensitivity to an increase in the government holding in these companies after the equity infusion.

They also see loans as a cheaper option than equity support from the government.

“OMCs have presented a few modalities to the ministry of petroleum and a decision is awaited,” an OMC official said.

The combined loss of three state-run retailers for the first

half of the previous financial year was a whopping Rs 21,201 crore due to the virtual freeze on petrol and diesel prices when global prices rose. This has deprived the government and other stakeholders of dividend income from these fuel retailers in FY23.

With the crude prices falling from around $115/barrel in May, 2022 to the current level of around $75, these companies are now making profits from both refining and retail sale of auto fuels.

In normal circumstances, these OMCs pay around Rs 10,000 crore in dividends annually to the government and ONGC (holding company of HPCL).

The government’s direct/indirect holding in the three state-run retailers, which supply over 90% of domestic fuel supplies, is bordering 51%, the minimum required to be classified as a state-run firm. The Centre owns 51.5% of IOC and 52.98% of BPCL. The country’s top state-run explorer ONGC owns 54.9% of HPCL.

Also read: Rail Vikas Nigam share price up 73% in one month; are current levels suitable for entry?

With the huge losses putting pressure on the OMC’s finances, the Centre announced the capital investment in their refinery upgradation and emission reduction projects, among others.

The government’s plan to privatise BPCL came a cropper in FY22 primarily due to a lack of pricing freedom to the state-run OMCs amid global uncertainties in the hydrocarbon market.

(With inputs from Manish Gupta)