The Union Budget on Wednesday proposed a capital expenditure of around ₹35,000 crore for replenishing the Strategic Petroleum Reserves as well as for retrofitting refineries of oil marketing companies (OMCs) to meet emission norms.
The FY23 budget estimate (BE) on expenditure for MoPNG was ₹8,290 crore, which as per the revised estimate (RE) stood at ₹33,578 crore and was higher on account of a one-time grant to PSU OMCs for meeting under-recoveries in domestic LPG.
For FY24, the capital outlay on petroleum is ₹35,508 crore with higher provisioning for investment in OMCs. The higher capital expenditure is for retrofitting of refineries to meet emission and pollution standards as well as for augmenting strategic reserves.
ICRA Group Head (Corporate Ratings) Sabyasachi Majumdar said the budgetary allocation towards capital support to OMCs at ₹30,000 crore is against the industry’s ask of ₹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 ₹180 crore in ICRA’s opinion which would be a risk for PSU OMCs in case international crude oil or LPG prices rise,” he added.
The increase in basic customs duty on Naphtha would be beneficial for the refiners as it would increase their domestic sales realisations. Further, exemption of excise duty on blended Compressed Natural Gas equal to the GST paid on Biogas/Compressed Biogas component would promote increased usage of the latter, Majumdar said.
Strategic Petroleum Reserves
For the construction of caverns for storing crude oil, the government has proposed a capital outlay of ₹5,000 crore (against a FY23 RE of ₹40.01 crore and FY23 BE of ₹600 crore) to the Indian Strategic Petroleum Reserves (ISPRL). Another capital expenditure of ₹5,000 crore has been proposed for ISPRL for replenishing crude oil reserves.
The cumulative capital expenditure proposed for the Strategic Petroleum Reserves (SPR) is ₹5,508 crore for FY24, beginning April 2023.
ISPRL has established crude oil storage facilities with a capacity of 5.33 million tonnes (mt) at – Vishakhapatnam (1.33 mt), Mangaluru (1.5 mt) and Paddur (2.5 mt) – under Phase I of the SPR programme. This is equivalent to around 38 million barrels and can serve India’s crude requirement for 9.5 days.
Under Phase II, the government in July 2021 approved establishing two additional commercial-cum-strategic reserves with a total storage capacity of 6.5 mt at Chandikhol (4 mt) and Paddur (2.5 mt) under the PPP mode.