The Union Cabinet has approved a one-time compensation of Rs 22,000 crore for the three Oil Marketing Companies (OMCs): Indian Oil Corporation (IOCL), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) in view of the rising under-recoveries due to rising LPG prices globally. While announcing the government decision, union minister Anurag Thakur has said that the prices of LPG have risen globally up to 300 per cent while in India it has not gone up as much leading to under-recoveries of OMCs.
In the year 2022, Hindustan Petroleum’s share price has declined 27.9 per cent as on October 12. While Bharat Petroleum is down 21.5 per cent and Indian Oil Corporation has slipped 9.6 per cent.
What could be the impact of this one-time compensation of Rs 22,000 crore on these PSU OMCтАЩs? Market veteran Gaurang Shah, Senior Vice President at Geojit Financial Services, says: “This one-time compensation can give some kind of temporary relief to the oil marketing companies, but it is not a durable kind of situation. As the energy crisis across the globe rises, because of shortage of natural gas and crude oil, due to certain constraints, this could get a little bit uglier in terms of finding energy security at a reasonable price.”┬а
Shah says that out of the three oil marketing companies, he is positive on two of them, that is BPCL and HPCL. On IOC, he remains a bit underweight. “The problem is that if we can get these petroleum products under the GST, then that could possibly solve a lot of issues which have been there for a long period of time, but I think all these states have to come on board and agree to it, which will translate into some kind of a comfort zone for oil marketing companies. On the other side, we have depreciating rupee against the dollar, which also creates a little bit of a difficult situation in terms of our oil imports or gas imports. So, this is a temporary kind of an arrangement, on how long the impact on the positive side lies on this move, that remains to be seen. But given the future situation of energy sources coming to a little bit of scarcity, I think one needs to find a durable solution,” he adds.
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Also read:┬аCabinet approves one-time grant of Rs 22,000 crore to public OMCs for selling domestic cooking gas
