Budget 2024: Government trims budget support for oil firms, defers filling strategic oil reserves

Image Source : PIXABAY Petrol pump

Budget 2024: The government has reduced its budgetary support to state-owned fuel retailers, including Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL), by halving the equity infusion to Rs 15,000 crore.

The move is aimed at supporting the companies’ investments in energy transition projects. The initial announcement by Finance Minister Nirmala Sitharaman in the 2023-24 fiscal budget included Rs 30,000 crore for equity infusion and Rs 5,000 crore for purchasing crude oil to fill strategic underground storages. However, the plan to fill strategic reserves has been deferred due to evolving trends in oil markets.

The finance ministry revealed that the decision to provide only Rs 15,000 crore for equity infusion was made during an Expenditure Finance Committee meeting on November 30, 2023. The ministry did not specify the reasons for this decision, but industry sources suggest it may be related to the improved profitability of the three companies in the current fiscal year, partially compensating for the losses incurred in the previous fiscal year.

The budget for 2023-24 allocates Rs 35,000 crore for priority capital investments in energy transition, net-zero objectives, and energy security by the Ministry of Petroleum and Natural Gas. Of this amount, Rs 30,000 crore is designated for capital support to oil marketing companies for green energy and net-zero initiatives, while the remaining funds were initially intended for purchasing crude oil for caverns in Mangalore and Visakhapatnam.

The government is seeking approval from the Cabinet Committee on Economic Affairs (CCEA) based on the recommendations of the Expenditure Finance Committee. Additionally, the boards of the IOC and BPCL had previously approved rights issues to raise funds, with the government participating in the rights issue. However, there are indications that the rights issues for IOC and BPCL may be halved, with completion targeted for March 31.

In the case of HPCL, the government will not directly infuse equity due to its majority stake sale to ONGC in 2018. Instead, ONGC is expected to make a preferential issue of shares to the government. BPCL and HPCL have set ambitious targets to achieve net-zero carbon emissions from their operations by 2040, while IOC aims for 2046.

The decision to trim the equity infusion and defer the crude oil filing plan may be linked to the government’s efforts to manage its fiscal deficit, aiming to limit it to 5.9 per cent of GDP for the current fiscal year ending March 31. This move comes as the government faces revenue collection challenges, particularly from the sale of stakes or divestment in public sector undertakings (PSUs).

(With PTI inputs)

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