India’s state-owned oil refiners have been denied funds in the current fiscal year to achieve their net-zero carbon goal, according to the interim budget presented by finance minister Nirmala Sitharaman on Friday. The budget has also not provided any sum to buy crude oil to fill the country’s strategic reserves amid volatility caused by tensions in the Red Sea.
Net-zero carbon goal deferred
Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) are targeting to end net carbon emissions from their operations by 2040 and Indian Oil Corporation (IOC) by 2046. The three companies have planned to invest up to Rs 4 trillion ($48.8 billion) in energy transition projects, such as renewable energy, hydrogen, biofuels and carbon capture.
In the previous budget, Sitharaman had announced an equity infusion of Rs 30,000 crore ($3.7 billion) in the trio to support their energy transition plans. However, the finance ministry halved the equity support in November, and Sitharaman’s interim budget showed no allocation for equity infusion in the current fiscal year. The Rs 15,000 crore ($1.8 billion) has been earmarked for the next fiscal year.
The decision may be linked to the government’s priority to limit its fiscal deficit to 5.8% of GDP this fiscal year, as well as the robust profit earned by the refiners in the first nine months of the year. IOC, BPCL and HPCL have reported a combined profit of Rs 69,000 crore ($8.4 billion) for the nine months ending December, against a loss of Rs 18,600 crore ($2.3 billion) in the corresponding period last year.
The board of IOC and BPCL had last year approved rights issues to raise up to Rs 22,000 crore ($2.7 billion) and Rs 18,000 crore ($2.2 billion), respectively. The government was to participate in the rights issue. Sources said the two firms plan to halve the rights issue. In HPCL, the government will not make any direct equity infusion as it had sold its majority stake in the company to ONGC in 2018. The infusion is likely to be through ONGC.
While other state-owned oil companies such as ONGC and GAIL (India) Ltd have also lined up funds to achieve net-zero carbon emissions, the equity support was limited to the three fuel retailers.
Strategic reserves left empty
The budget last year allotted Rs 5,000 crore ($610 million) to buy crude oil to fill the country’s strategic underground storages. However, the interim budget did not provide any funds either in the current fiscal year or the next for filling the strategic reserves.
India has built strategic petroleum reserves with a total capacity of 5.33 million tonnes (39 million barrels) at three locations – Visakhapatnam, Mangalore and Padur – to ensure energy security and cushion against price volatility. The government has also approved two more sites at Chandikhol in Odisha and Padur-II in Karnataka with a combined capacity of 6.5 million tonnes (48 million barrels).
The strategic reserves can meet about 10 days of India’s oil demand, which averaged 4.6 million barrels per day in 2023-24. However, only about half of the existing capacity is filled with crude oil, mostly supplied by Saudi Arabia and the UAE under long-term contracts.
The government had planned to buy low-priced crude oil from the spot market last year when prices crashed because of the pandemic-induced demand slump. However, it could not do so because of logistical constraints and lack of funds.
The interim budget has missed an opportunity to fill up the strategic reserves when crude oil prices are still relatively low compared with pre-pandemic levels. Brent crude averaged $67 per barrel in January 2024, up from $55 per barrel a year ago but down from $75 per barrel in October 2023.
The oil market is facing uncertainty because of the escalating tensions between Iran and Saudi Arabia over the Red Sea shipping route, which carries about 10% of global oil trade. Any disruption in the supply could push up prices and hurt India’s oil import bill, which is expected to rise by 36% to $120 billion in 2023-24.