State-run oil firms spend 40% of capital expenditure target by October

Fail to meet govt directive to spend 50%, but experts say trend encouraging

State-run oil companies could be on course to meet their annual capital expenditure target despite facing the hurdles of Covid-19 and extended monsoons. Publicly available data suggests investments made have crossed 40 per cent of planned expenditure.

“As of mid-November, we have already met 45 per cent of the total planned capital expenditure for the year,” said MK Surana, chairman and managing director for Hindustan Petroleum Corporation (HPCL).

Data sourced from the Petroleum Planning & Analysis Cell (PPAC) suggests state-run firms spent a combined Rs 39,877 crore in the April-October 2020 period, which is 40 per cent of the full year’s target of Rs 98,522 crore.

In July, hard pressed to revive the economy after the nationwide lockdown, the finance ministry directed public sector entities to ramp up execution and spend half of the full-year capex target by September. While state-run firms missed the finance ministry’s ambitious target, industry experts and executives suggest the rate of execution is impressive, and most firms may achieve the target.

“That is a good trend. Most oil firms fare better in terms of capex in the second half,” said Debasish Mishra, partner at Deloitte Touche Tohmatsu.

PPAC data shows that in the April-October period of financial year 2019-20 (FY20), state-run oil companies met 49.5 per cent of the annual target. In FY19, it was 56 per cent. The firms over-achieved their capex targets in the last two financial years.

Surana from HPCL added, “We should be able to meet the full-year target of Rs 11,500 crore.” He expects the company to finish the year with a slightly higher capex of Rs 12,000 crore.

International and domestic travel restrictions starting late March and shortage of labour hit capex related work for all companies. Surana added that the initial scare also made it difficult to hold on to available labour.

Top executives from Oil and Natural Gas Corporation (ONGC) in a call with analysts last month said, “When the pandemic came, we had a review as to what was realistically possible. At that stage (April-May) we thought that capex would be of the order of around Rs 26,000 crore or so. Now that situation has improved, we believe that we will be closer to the initial estimate of around Rs 32,000 crore.”

The re-emergence of local restrictions and international travel restrictions may be a concern for some of these firms. “I expect state-run oil marketing companies to take the lead here as upstream companies may face issues over international travel restrictions. Most of the state-run oil companies have a healthy balance sheet to support the planned capex, execution will be key,” Mishra said.

Surana, however, remains optimistic that new restrictions, if any, may not hamper execution. “We are not expecting any major lockdowns, these are local restrictions. Also, earlier the problem was many of the labourers were returning to their villages, we do not expect them to go back this time.”