In the Lok Sabha poll year, oil companies get marketing Budget boost

Overall capex in the oil sector up by 18.6 per cent to Rs 1.33 trillion

The Interim Budget looks to bolster the refinery and marketing activities of oil companies in 2024-25, following a year of declining expenditure. It is poised to provide additional financial muscle to the three public-sector oil marketing companies (OMCs) — IOC, BPCL, and HPCL — in the months leading up to the general election.

The allocations for this sector have seen a 4.91 per cent increase, amounting to Rs 57,451 crore for FY25, up from Rs 54,758 crore in the Revised Estimate for FY24. This increase is particularly noteworthy given that expenditure for refineries and marketing had fallen by 9.5 per cent in FY24, compared to FY23.

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These OMCs are also the dedicated agencies for the central government’s flagship scheme on subsidised LPG connections — the Pradhan Mantri Ujjwala Yojana (PMUY). With the scope of the PMUY now broadened to include more beneficiaries, particularly women, it is anticipated that a significant portion of the marketing budget will be directed towards awareness campaigns for Ujjwala.

With 103 million connections, PMUY beneficiaries constitute nearly a third of the 314 million households in India with an LPG connection. In October, the Union Cabinet decided to expand the PMUY coverage by 7.5 million new LPG connections over three years to 2025-26, at a cost of Rs 1,650 crore.

The PMUY was introduced in May 2022 as a flagship scheme to make clean cooking fuel, such as LPG, accessible to rural and deprived households that were otherwise reliant on traditional cooking fuels like firewood, coal, and cow-dung cakes.

Modest hike in the exploration segment

The capital-intensive exploration and production sector — which includes state-run entities, such as the Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) — saw a relatively modest increase in allocations. For FY25, the government allocated Rs 50,382 crore for exploration and production, compared to Rs 48,658 crore in the Revised Estimate of FY24 — a rise of 3.5 per cent.

“The Interim Budget demonstrates the Union government’s continued focus on achieving self-sufficiency in energy requirements,” said Deepak Chowdhury, a partner at IndusLaw. During this period, ONGC will see a marginal increase in capital expenditure to Rs 30,125 crore. Experts believe this move aligns with the ambitious expansion plans of oil companies.

These plans include a Rs 4 trillion roadmap by IOC, which aims to advance energy transition projects alongside the expansion of refining and petrochemical capacities, unveiled last year. Similarly, BPCL has projected its capital expenditure for the next five years at Rs 1.5 trillion. BPCL's investment figures for 2024-25 have seen an 88 per cent increase to Rs 9,000 crore, compared to Rs 7,350 crore for 2023-24, based on the Revised Estimate.

The latest Budget is expected to spur major investments in all public-sector OMCs in FY25. Total allocations for capital expenditure in the petroleum and natural gas sector have risen by 18.6 per cent to Rs 1.33 trillion in the latest Budget from Rs 1.12 trillion in the Revised Estimate for 2023-24.

The Budget document indicates that companies like GAIL and Engineers India Ltd (EIL) will issue bonus shares worth Rs 2,940 crore to the government in 2023-24, of which GAIL’s share will be Rs 2,840 crore.

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Reduced support for OMCs

The capital support to OMCs, a Rs 30,000 crore fund for energy transition and net-zero objectives announced in the Budget last year, has been halved to Rs 15,000 crore. This substantial outlay was intended to focus on new-age fuels — green hydrogen, ethanol, and other biofuels. However, the funds were never disbursed.

 As part of inter-ministerial consultations, the Petroleum and Natural Gas Ministry requested the Finance Ministry to allocate the same corpus in the latest Budget as well, Business Standard reported last month. But Finance Ministry officials pointed to record profits made by OMCs in the first three quarters of FY24 to deny that request, officials said on Friday.

 A Rs 5,000 crore payment to the Indian Strategic Petroleum Reserve that had been allocated in the previous Budget was also conspicuously absent this time.