Will PSUs lose their thunder in Modi 3.0?
Hindustan Petroleum Corp. Ltd (HPCL), Bharat Petroleum Corp. Ltd (BPCL) Indian Oil Corp.
Ltd (IOC), Oil and Natural Gas Corp. (ONGC) and National Thermal Power Corp. (NTPC) are susceptible to any populist policies that do not allow a fair return on capital with policy interference.
Fuel prices especially petrol, diesel and liquefied petroleum gas (LPG) play a crucial role in politics. The BJP government was conscious of allowing the oil marketing companies (OMCs) to recover their past losses caused by absorption of the surging crude oil price. Hence, it did not ask OMCs to reduce fuel prices despite a decline in the average Brent crude oil prices in FY24 to $82 per barrel from $95 in FY23.
As BJP had a majority of its own, it could do so. But going forward, there could be potential friction with alliance partners to keep the fuel prices low irrespective of the international crude oil price and financial health of the OMC. Any negative for HPCL also impacts ONGC with the former being a subsidiary of the latter.
As it is, the upstream companies like ONGC are already not being allowed to benefit from higher crude oil prices owing to the windfall tax. It may be asked to share some more burden of OMC if the need arises. The windfall tax was $10 per barrel for ONGC when gross realization was $82 per barrel in FY24.
Janata Dal (United), a key coalition party headed by Nitish Kumar, faces state assembly elections in 2025. Kumar has been demanding electricity at subsidized rates from NTPC and other central producers. There could also be a demand for free agricultural power along the lines of Andhra Pradesh, under the control of Telugu Desam Party (TDP), the other coalition partner.
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