The Union Budget 2023-24 announced by Finance Minister Nirmala Sitharaman on February 1 has allocated Rs 30,000 crore for capital support to state-run Oil Marketing Companies (OMCs).
The Ministry of Petroleum and Natural Gas has provided the allocation to OMCs—Indian Oil Corporation (IOCL), Bharat Petroleum Corporation (BPCL), Hindustan Petroleum Corporation (HPCL)—which have booked losses in the first half of the current financial year.
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The oil marketers had suffered cumulative losses of Rs 27,276 crore in the first half of FY23, according to a ministry release. However, IOCL and BPCL reported net profit in the quarter ended December 2022 on account of lower marketing losses and higher gross refining margins (GRM). In the quarter, IOCL posted consolidated net profit of Rs 773.23 crore, while BPCL posted consolidated net profit of Rs 1747.01 crore.
In January 2023, OMCs had demanded Rs 50,000 crore cash compensation from the government for the financial year 2023-24. The OMCs sought the compensation on grounds of freeze in retail prices of petrol and diesel in 2022 despite a steep rise in crude prices.
The budget has also allocated Rs 500 crore for the refinery and marketing sector.
Sabyasachi Majumdar, Senior Vice President and Group Head - Corporate Ratings at ICRA said, “The budgetary allocation towards capital support to OMCs is Rs 30,000 crore as against the industry’s ask of Rs 50,000 crore to compensate for losses incurred on the sale of auto fuels and LPG.”
“The budgetary allocation for DBT on LPG (domestic) sales is low at Rs 180 crore in ICRA’s opinion, which would be a risk for public sector OMCs in case international crude oil or LPG prices rise. The allocation to Indian Strategic Petroleum Reserves (ISPRL) is Rs 5,000 crore for build-up of crude oil reserves. The increase in basic customs duty on Naphtha would be beneficial for the refiners as it would increase their sales realisations on domestic sales,” added Majumdar.
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