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Budget: Govt puts off equity infusion in state oil companies to next fiscal

The government has pushed its plan to infuse equity into Indian Oil, Bharat Petroleum, and Hindustan Petroleum to the next fiscal year and slashed the proposed amount by half to ₹15,000 crore, according to the budget document.
This means the planned rights issue by Indian Oil and BPCL will be deferred to the next fiscal year. Similarly, the preferential allotment plan by HPCL, where the government doesn’t have a direct equity stake, will also get delayed.

The government has also scrapped its plan to spend ₹5,000 crore on filling the strategic petroleum reserve (SPR). Crude oil has been very volatile this fiscal year and is currently trading around $80 per barrel, making it harder for officials to make purchase decisions.

For the next fiscal year, the government has allocated ₹15,000 crore for equity infusion into state oil companies and ₹400 crore to pay for the construction of new SPRs. No allocation has been made for filling SPR.

In the current year’s budget, the government had allocated ₹30,000 crore for equity infusion into oil marketing companies and ₹5,000 crore for the purchase of crude oil to fill the SPR.

Strong profits at oil companies this fiscal year made the government change its mind on equity infusion, according to multiple people familiar with the matter.

Indian Oil, BPCL, and HPCL have reported a combined profit of ₹69,000 crore for the nine months ended December as against a loss of ₹18,600 crore in the year-earlier period. The public aim of the planned equity infusion has been to help state companies pursue energy transition projects.

However, it has been widely believed that it is no more than state support to companies that incurred losses in the previous fiscal year due to their inability to raise domestic pump prices in line with international rates.

But with oil companies flush with cash now, the argument for fund infusion has weakened.

Oil companies themselves have not been too eager to receive equity infusion from the government. Equity also needs to be serviced and oil companies can easily borrow from the market at competitive rates, many executives had previously told ET.

Shares in Indian Oil, BPCL, and HPCL closed 0.5-2% higher on Thursday when the BSE benchmark Sensex closed 0.15% lower.

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