Oil companies dole out Rs20,000 crore dividends over two years
Moneylife Digital Team 01 June 2012

Even as Indians pay higher and higher oil prices to compensate oil companies, these companies happily dole out dividends to its shareholders, the biggest beneficiary being the government

Oil companies such as Indian Oil Corporation (IOC), Oil India (OIL), Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL), etc, have been clamouring for a hike in oil prices, as a oil price increases was squeezing their margins. They got what they wanted; the government hiked petrol prices by Rs7.50 per litre, its steepest hike ever, as it struggles to reign in fiscal discipline. But the fact is that these companies have doled over Rs20,000 crore as dividends over the past two years.

Oil companies import/manufacture crude at market rate but sell it at a discount as per government directives, to keep petrol prices low and accessible to the masses. As their fixed cost is high (capital intensive industry) and sales price is low, there is a “loss.”

The Confederation of All India Traders (CAIT), a body which looks after traders’ interests, strongly questioned the so called “loss theory” of the oil companies which has prompted them to raise the petrol prices. According to CAIT national president BC Bhartia and secretary general Praveen Khandelwal, “If oil companies are in losses than how come they are paying dividend to their shareholders and heavy bonus to their employees.”  Further he questioned, “Oil companies are showing huge profits in their annual accounts, so where is the question of incurring losses?”

We took a database of selected oil and gas companies, only those which are part of the government’s subsidy programme, and excluded private players. Take a look at the table below:



A total of Rs14,862.05 crore was paid as dividend for the fiscal 2010-11 while this year it is proposed to be Rs4,634.20 crore. Even though it is less, money seems to be going to shareholders’ pockets out of tax payers’. If you combine both these years’ dividend it would amount to nearly Rs20,000 crore, which is a significant sum of money.

Let us take BPCL, an oil marketing major in India, which sells petrol and diesel to the masses. It has not only announced dividends of Rs11 per share, but also issued bonus shares in the ratio of 1:1. This would take its paid up capitalisation to Rs723.08 crore. Apart from government, its major shareholders are BPCL Trust and Life Insurance Corporation of India (LIC). Effectively, the dividend (and shares) is going back to the government, out of the main coffers of BPCL.

Comments
HS
1 decade ago
It appears that you have no knowledge of business, capital expenditure, ROI, modernisation, etc. and you would prefer that India should import refined products in the future, because to increase capacity to meet increasing demand requires resources. I can't be more harsh than to say that you are really wet behind the ears. You should join Mamta Banerjee's party. And the person who allowed you to write this article must be from liberal arts background, like the CEO of defunct MF Global.
Indian
Replied to HS comment 1 decade ago
You seem to be totally brainless.There is excess refining capacity in India - only 35% is used.. And there is absolutely no subsidy on oil..

Please check at facebook dot com/ProtestAgainstTheUnjustifiedOilPriceHike
anil agashe
Replied to HS comment 1 decade ago
Do you work for one of these cos? They are the one's who do not understand the business and waste money. ONGC and Guj Gas discovered reserves in KG field and nothing is flowing from there as yet. Why? Because they are PSUs? No one says we should import refined oil. Where did you get that feeling from? Why are operating margins of these cos so low compared to RIL? And don't tell me RIL is fraud, if it is it needs to be proved. They have invested money and run their refineries efficiently. What stops Oil pSUs from doing that. Nobody questions dividends paid by them because they make money and donot get subsidy. If they are given subsidy they may actually price products lower than PSUs. Thats why they and other Pvt players are kept out.
HS
Replied to anil agashe comment 1 decade ago
Reliance is indeed the biggest fraud in India. It has bought all politicians from Pranab Mukherjee in 1980 till today. It has gold plated the KG6 gas project so that the government does not get any revenue. It has poached on trained man power of Oil PSUs. Its gross refinery margin is higher because it is a vertically integrated player from oil refining to manufacture of yarn. You need to read Indian Express papers of 1980s and then you will know the truth about Reliance. I wonder if you were even born then.
Anil Agashe
1 decade ago
The title is misleading. One can calculate for 5 yrs for higher figures. This would be like CAG estimation of losses. The dividends need to be compared with the subsidy paid in that particular year to each company.
As a matter of fact if the company's loss is recouped by a subsidy such company must be barred from paying dividends.
R Vijayaraghavan
1 decade ago
What a fraud. Please post this story on Facebook and Twitter and any other "social media:
sachin
1 decade ago
Further he questioned, “Oil companies are showing huge profits in their annual accounts, so where is the question of incurring losses?”

What nonsense!

Why does moneylife even bother to publish such comments.

BPCL/HPCL had a 1% profit margin last year. Is that called huge profits?

Where is the cushion to absorb higher losses?

Please show me.
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