Oil & Gas: Pre Budget Reflections
Oil & Gas Best Sellers!
As per information available in public domain, for 23-24, GDP at current rates is
expected to be Rs 296.58 Lakhs, indicating a growth rate of 8.9%. This is substantially
lower than 16.1% growth in the previous year. While employment generated data for
23-24 is not readily available on a consolidated basis, Forbes has cited that in year
2023 unemployment rate is to be 10.05% (in Oct) which is higher than 7.33% in 2022.
Well statistics can be damn lies. Some news, has been circulating recently, in the
Energy Circles that the Government is thinking of withdrawing its benevolent hand from
backing up PSU Oil & Gas companies on Capital Expenditure. This, indeed is worrying.
In fact, a sum of Rs 35,000 Crore had been kept for priority capital investments
regarding energy transitions and net zero objectives. Rs 30,000 Crore was earmarked
for State Owned Fuel Retailers and rest for Strategic Petroleum Reserves. Now
interestingly, due to shortfalls in revenue and lower receipts from Sale of PSUs, the
Government is reconsidering capital investment allocations. The sales of PSUs was to
fetch Rs 51,000 Crores but got only Rs10,050 Crores. The Government has yet to
declare its intentions publicly. However, PSUs like the Indian Oil Corporation Ltd. which
was poised for rights issues worth 2200 Billion Rupees and Bharat Petroleum Ltd. for
rights issue of 180 Billion Rupees to be backed by the Central Government have been
asked to reduce them by almost half. When the Budget of 23-24 was being made with
the lofty ambition of rocketing the economy through capital expenditure, skeptics had
voiced serious concerns which seems to have come to pass. .
One is reminded of the famous Yiddish proverb -“God laughs when Man plans.” Policy makers and planners especially in India, rarely have an alternate or well thought out mid level course correction syatem. Every Indian budget seems to have one lynch pin which most times comes undone. Capital Expenditure was the one for 23-24. Now with the government looking to cut down on the promised support for Capex, OMCs have been left twiddling their thumbs. The much flaunted economic growth through capital expenditure seems to have flown out of the window. Such turnabouts are becoming all too common in the economic planning process. ONGC is said to have obtained government clearance for a subsidiary company, tentatively named "ONGC Green Limited";. ONGC had last year entered into an agreement with NTPC Green Energy Limited for an offshore wind projects and exploring opportunities in storage, e-mobility, carbon credits, green credits, nuclear, green hydrogen and derivatives , green ammonia & green methanol. Now the company will have to totally fend for itself as far as finances are concerned. India has been pitching for renewables and alternate fuels for some time now. There is also talk of replacing Petrol/Diesel run automobiles by cleaner energy, read Electric Vehicles by Year 2030 which is not very far off. At the same time, West Coast Refinery has not been shelved. In any case, industry circles believe that Oil & Gas will remain as a potent source of energy for next couple of decades. Bodies like the International Energy Agency (IEA), the Intergovernmental Panel on Climate Change (IPCC), and McKinsey, have suggested that conventional fossil fuels, including oil, are likely to remain in the energy mix right up to 2050s. Interestingly, energy consultants like Wood Mackenzie have said that if global fuel consumption aligns with emission targets to limit global warming, Oil price projections in 2030 could fall as low as $40 per barrel. While Oil is expected to remain relevant, its future trajectory will depend on interplay of economic, environmental, and geopolitical factors. India is admittedly very comfortable when the Crude prices are around $60 a barrel. Today, despite two raging wars and attack on ships in the Red Sea Oil routes, Brent is at $83.55 while as of January 24, 2024, the Indian Crude Basket price stands at $78.34 per barrel! This is not bad at all.
We have to admit that Mr.Narendra Modi has been extremely lucky for India. He seems
to carry the proverbial golden wand. During his watch, Crude has rarely touched $100
per barrel consistently. Imagine the shock which Mr. Manmohan Singh's government
must have faced when Crude touched $100 sometime in 2008.The wars and attacks on
ships in Red Sea notwithstanding, the current government has had a relatively easy
time on the Oil front. In as much as, for the first time in 2022, the government had to
introduce a windfall tax, primarily because the private Oil & Gas players were making
humongous profits. Mr. Hardeep Singh Puri, Cabinet Minister of Petroleum & Natural
Gas who also holds the position of Minister of Housing and Urban Affairs recently in a
media interview at World Economic Forum Davos, said countries, including some in
the Middle East, had told him they want to acquire Indian Oil Companies outright but
he said, they are strategic and not for sale. This is a very significant statement however
it's in sharp contrast to the avowed policy and intent of the current government to exit all
businesses. The Air India Sale, as well as the failed attempt at selling Bharat Petroleum
Corporation Ltd. are concrete examples. In fact, the Union Budget factors in proceeds of
Sale of PSUs as revenue. Its speculated that in the Interim Budget, to be presented on
February 1, government will retain its focus on disinvestment of public sector units.
Some sources indicate that the target from disinvestment proceeds is likely to be kept at
over Rs 50,000 Crore. A final decision on the disinvestment proceeds will be taken in
the full Budget. Now what will actually come to pass, the words of Minister for MoP&NG will hold or what is propounded in the budget is to be seen.
The continued obsession of the policy makers for disinvestment of PSUs is indeed very
intriguing. Despite the setback in the sale of Bharat Petroleum Ltd. and the rather
mixed track record of Air India's current performance, the zeal for total annihilation of
PSUs does not seem to have abated. But as hinted by the Minister of MoP&N Gat
Davos, Oil & Gas is indeed strategic. This is actually true not only for India but most
countries. This time round, the attempt for sale of an Oil & Gas company could be on Indian Oil Corporation Ltd.. Many private players in India and abroad have been eyeing
it for long. By all standards, IOCL makes for plumb pickings. IOCL has interests in
Upstream, Midstream and Downstream sectors. It's a consolidated Oil & Gas company
which has been steadily creating value and posting good returns for shareholders. It's
assets can be compared to the best in the world. Since all the due diligence and
monetization exercises have already been undertaken, not much time would be needed
for the change of hands. Another interesting aspect is that, of late, only one of its
Divisions i.e. Pipelines is making profits while the other Divisions viz. Refineries and
Marketing are posting losses. All that would be required, is divest the Pipelines Division
and overnight a profit making Fortune 500 Company will become loss making.. The
guiding principle of a natural monopoly to common carrier has already been professed
from the tree tops. The Refineries Division would then become a supplier to other
Private Refiners and the Marketing Division facilities used to push their MS, Diesel, ATF
& Lubes etc. There can always be ways to convince the public that it's not actually a
sale but strategic alignment of a PSU for the economic betterment of the nation. The
only problem which the citizens and consumers will have to face is the predictable
monopoly, which is bound to happen. A few private Oil & Gas Companies will control
the entire nation just as the commercial skies are today controlled by few private
companies. All have witnessed how the private players in the Aviation Sector, held
consumers and the nation to ransom during the recent inclement weather in Northern
India. War rooms were set up but could hardly provide solutions. At least, Air India ,in its
PSU avatar, never made fliers have dinner in evening chill sitting on the tarmac .What a
shocker and spectacle it was for people not only in India but the world over. If IndianOil, which is one of the biggest customer facing organizations in India gets privatized the
strangle hold on consumers of the private monopolies will be impossible to shake off.
After all, Oil & Gas is a much larger consumer product than Air Services or Hotels, where from PSUs have been totally eradicated. The 2024 elections are going to be
crucial for more things than one can imagine. In fact, in its bosom, hide several
predestinations', much beyond the free will of common Indian citizens.
By Sidhartha Mukherjee
(Copyrighted material is for fair use, duly and gratefully acknowledged)
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