Oil marketing companies to bear latest oil price cut, not govt grant

OMCs have raked in record Rs 69K cr net profit in first 9 months of FY24

The decision by the three oil-marketing companies (OMCs) to reduce petrol and diesel prices after a record 22 months will be borne by the companies themselves, and not through a government grant, officials said.

Beginning March 15, prices of petrol and diesel were reduced by Rs 2 per litre, a move that analysts have said may reduce the annual revenue of OMCs by Rs 30,000 crore in 2023-24 (FY24).

“OMCs have delivered record-breaking profits every quarter in the current financial year (FY24). They have sought to reduce retail prices taking into account their revenue projections in the upcoming quarters. Therefore, the issue of a government grant to help companies does not arise,” a petroleum and natural gas ministry official said.

The Rs 15,000 capital support for energy transition and net-zero objectives announced in the interim Budget for 2024-25 also won’t be used for the same, they added.

“The fund is supposed to be used for deploying transformative technologies which will help in the energy transition goals. It will not be used for financial purposes,” the official added.

Originally announced in the 2023-24 Budget as a Rs 30,000 crore fund for priority capital investments, the mega outlay was set to focus on new-age fuels — green hydrogen, ethanol, and other biofuels. However, the fund was never disbursed and was subsequently halved to Rs 15,000 crore in the latest Budget.

The record high budgetary grant toward green transition was to be a key driver in reducing the carbon emission of the economy and leap towards green fuels and green energy sources.

“In the latest Budget, the finance ministry has revised the capital outlay for OMCs based on lower capital requirement projection by them,” another official said.

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Record profits

The three public-sector OMCs — Indian Oil Corporation (IndianOil), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL) — control roughly 90 per cent of the retail market.

The aggregate net profit of the three companies rose to Rs 69,000 crore in the first nine months of FY24. In comparison, they had cumulatively posted a loss of Rs 18,622 crore in the corresponding period of the previous year.

The companies saw a rise in sales volume despite falling revenue. As a result, earnings before interest, tax, depreciation, and amortisation margins had reached record levels in the first nine months of the current financial year, Fitch Ratings said in a report last month.

“We expect Indian OMCs to recoup a large part of 2022-23 losses in 2023-24 due to their marketing segments’ profitability," it had said.

However, until January, OMC executives had cited underrecovery in diesel sales.

Meanwhile, gross refining margin (GRM) — the revenue refiners accrue from transforming each barrel of crude oil into refined fuel products — for the first nine months of the financial year has fallen.

IndianOil reported a GRM of $13.26 per barrel, down from $21.08 per barrel in the corresponding period of the previous year. Meanwhile, BPCL and HPCL saw GRMs reduce to $13.3 per barrel and $8.49 per barrel in October-December quarter (Q3), respectively.