The government has decided to reduce the capital support provided to state-owned oil marketing companies by half. Originally intended to enhance investments in energy transition projects, the support was reportedly designed to compensate three fuel retailers that incurred substantial losses in 2022 when they maintained retail petrol and diesel prices despite a surge in crude oil prices following Russia’s invasion of Ukraine.
The Union Budget for FY24 had allocated ₹30,000 crore for capital support to Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd. (BPCL), and Hindustan Petroleum Corporation Ltd. (HPCL). Additionally, the Finance Minister proposed ₹5,000 crore for purchasing crude oil to fill strategic underground storages in Mangaluru and Visakhapatnam.
However, the Finance Ministry recently announced that the equity support has been reduced to ₹15,000 crore, and the plan for filling strategic reserves has been postponed. The decision was made during the Expenditure Finance Committee meeting on November 30, 2023. The Finance Ministry explained that a maximum of ₹15,000 crore could be provided for equity infusion into oil marketing companies (OMCs) in FY24, based on the committee’s recommendations.
While the ministry did not specify the reasons for cutting support, it is believed that the strong performance of OMCs influenced the decision to slash equity infusion. The government is seeking approval from the Cabinet Committee on Economic Affairs (CCEA) based on the recommendations of the Expenditure Finance Committee. The draft note for CCEA approval is currently in process.
The government’s move comes amid OMCs’ positive financial performance, with Indian Oil Board and Bharat Petroleum Corporation both approving significant amounts through rights issues for initiatives such as green energy projects. All four companies, including HPCL, are expected to complete the formalities of the revised capital infusion plan by March 31, 2024.
