Higher crude prices threaten govt's dividend income from oil PSUs

In FY17, oil firms accounted for 46% of all payouts by PSUs, the highest in at least a decade

Rising crude oil prices are not only bad for India's currency and current account deficit, but could also negatively impact the government’s income from central public sector enterprises by drying up the dividend bonanza from oil companies.

In FY17, energy public sector undertakings (PSUs) such as Oil and Natural Gas Corporation (ONGC), Indian Oil, Bharat Petroleum, Hindustan Petroleum and Gail (India) accounted for 46 per cent of all dividend payouts by PSUs, the highest in at least a decade and up from 25 per cent a year ago.

Most importantly, oil PSUs cushioned the blow to the exchequer from the poor profitability and lower dividend payouts from public sector banks and manufacturing firms such as Bharat Heavy Electricals, Coal India, Steel Authority of India (SAIL) and NMDC.

The recent rise in crude oil prices threatens the dividend bonanza from oil PSUs as these companies would now find it tough to increase retail fuel prices, hence risking their profitability. Analysts say that the biggest fiscal impact would be felt in FY19. "Bulk of the spike in crude oil prices occurred in the last two months and its impact will be felt in oil companies’ FY19 results. For FY18, companies are likely to pay hefty dividends," says G Chokkalingam, founder & MD, Equinomics Research & Advisory Services.

The combined dividend by non-energy PSUs was down 12.7 per cent in FY17 against a 120 per cent rise in dividend payout by energy companies during the period.

In all oil PSUs, declared equity dividend was Rs 257.4 billion in FY17, up from Rs 117 billion a year ago. In contrast, dividend outgo from non-oil PSUs declined to Rs 304.2 billion from Rs 348.3 billion a year ago.

Oil marketing companies saw the biggest rise in dividend payout due to a sharp rise in their profitability in the last three years. This, in turn, was the result of a huge decline in international oil prices and end of subsidies on transport fuel such as diesel and petrol. For example, Indian Oil Corporation -- the country's top crude oil refiner and marketing company -- paid Rs 85.3 billion by way of dividends in FY17, up from Rs 13 billion a year ago. 
 

Similarly, the payout by Bharat Petroleum Corporation nearly quadrupled during the period to Rs 45.6 billion in FY17 from Rs 11.6 billion a year ago.

This made up for a sharp decline in dividend payouts from historically big payers such as Coal India, NMDC, State Bank of India, Bharat Heavy Electricals and SAIL, among others. Many of these companies are still struggling with poor profitability, making dividends from oil companies critical for the government to meet its fiscal targets.

Source: Capitaline