Oil PSUs: Caught between war and price freeze

The uncertainty in the global crude oil market after the Russia-Ukraine war broke out has put the three state-owned oil marketing companies - Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL), under heavy financial stress over the past two quarters.

On one hand, the global crude oil prices have become volatile, often shooting above the $100 per barrel mark, on the other the prices of petrol, diesel, and domestic cooking gas LPG have remained frozen in India for a long time in order to keep inflation under check. In the July-September quarter, these three companies incurred a second consecutive quarterly loss totalling Rs 2,748.66 crore.

IOC had reported a net loss of Rs 272.35 crore for the July-September quarter, which came on the back of Rs 1,995.3 crore loss in the preceding quarter. BPCL on Monday posted a loss of Rs 304.17 crore in July-September, and in the preceding quarter, it was a loss of Rs 6,263.05 crore. Among the three companies, the condition of HPCL appears to be really grim.

It reported a loss of Rs 2,172.14 crore in the second quarter, while in the preceding quarter it had incurred its highest-ever quarterly loss of Rs 10,196.94 crore. The only silver lining is that the losses in the second quarter have moderated due to the cooling of global crude prices. The government had last month approved a onetime grant of Rs 22,000 crore to three state-owned fuel companies to cover their losses incurred over selling cooking gas LPG below cost over the past two years.

The grant will be for the losses they incurred on selling LPG below cost to domestic consumers from June 2020 to June 2022. This may to some extent soften the blows faced by the three companies, but may not be adequate to ride the storm. Petrol and diesel have remained frozen for around six months amid elevated crude oil prices, and the government should consider a similar grant to cover these losses.

Oil PSUs play a vital role in ensuring the country’s energy security and keeping the wheels of the economy running. If they repeatedly incur losses, they will be forced to put on hold future expansion plans. Another major issue being faced by some oil PSUs is the uncertainty over top leadership. The problem is acute in the Oil and Natural Gas Corporation (ONGC). 

The country’s top oil and gas producer has been without a regular chairman and managing director since April 2021. This September the company got its third interim chairman as the government has not made a full-time appointment yet. This month the top job in BPCL fell vacant and it also got an interim head in the absence of a regular appointment.

When the country is going through an oil crisis, the government can ill-afford to keep such vital installations headless or without a competent authority to take long-term executive decisions.