From floods to war, state-run oil firms prove indispensable despite repeated privatisation bids

NEW DELHI: Every time India has faced a major crisis - whether devastating floods, a once-in-a-century pandemic or the latest conflict in West Asia that threatened global oil supplies - it has been the country's state-run oil companies that have quietly kept fuel flowing.

For decades, India's public sector oil marketing companies (OMCs) have often been criticised for low returns, government intervention in fuel pricing and bloated operations. They have twice been put on the block for privatisation, with plans to sell Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) gathering momentum in 2002 before being halted by a Supreme Court ruling and again in 2020, before the process was abandoned after failing to attract enough bids.

Yet every national emergency has reinforced why governments have been reluctant to loosen their grip on companies that control the country's energy lifeline, analysts and industry officials said.

During the COVID-19 pandemic, the companies operated virtually uninterrupted despite nationwide lockdowns. Fuel stations remained open, refineries continued operating with skeletal staff, LPG cylinders were delivered to millions of households under strict mobility restrictions and aviation fuel supplies were maintained for relief and medical flights, they said.

Engineers isolated operating teams inside refineries for weeks to ensure continuous production, while tanker drivers and LPG delivery personnel worked through curfews and containment zones.

The latest conflict in West Asia once again highlighted its strategic importance.

As the Iran war disrupted crude trade routes and raised concerns over supplies through the Strait of Hormuz, India's state refiners rapidly reconfigured operations. They increased LPG production by diverting refinery streams away from petrochemicals, diversified crude procurement across geographies, optimised refinery runs based on available feedstock and coordinated fuel supplies nationwide to avoid local shortages.

"The result was that no corner of the country went without fuel. Unlike several countries, including those in the neighbourhood, India did not see any rationing of fuel," an industry official said.

The companies also leaned on India's strategic petroleum reserves and commercial inventories, while working closely with the government to reassure markets that adequate supplies would be maintained.

All this they did while passing on the least minimum impact of the spurt in global oil prices to consumers. For a good two-and-a-half months, the three firms absorbed the more than 50 per cent spurt in international oil prices and then raised petrol and diesel prices by Rs 7.50 a litre each, LPG rates by Rs 89 per cylinder and CNG by Rs 6 per kg - much lower than the increase seen in major economies around the globe.

The response reflected a playbook honed over decades: absorb global shocks first and shield consumers for as long as possible.

That came at a cost. Even as IOC, BPCL and HPCL await full government compensation for selling subsidised cooking gas in 2025-26, they chose to hold petrol and diesel prices steady through more than three months of turmoil in West Asia, sacrificing earnings to cushion consumers.

According to Crisil Ratings, the three state-run retailers are estimated to have incurred net under-recoveries of Rs 40,000-45,000 crore between March and May, after accounting for inventory gains - almost equivalent to their combined annual profits.

Private-sector fuel retailers, by contrast, passed on higher costs more quickly. Companies, such as Nayara Energy and Shell, raised pump prices by a steeper margin during the period, industry officials said.

A similar pattern played out during the COVID-19 pandemic. As demand collapsed and fuel marketing became unviable, several private retailers put up "no stock" signs at outlets across the country. State-run OMCs continued supplies, with the government invoking emergency provisions to ensure private outlets were also supplied with fuel, even if at prices higher than those charged by public-sector retailers.

Industry officials said India could have faced a very different situation had either BPCL or HPCL, which together account for roughly half of the country's fuel retail network and around a quarter of sales each, been privatised under the government's disinvestment plans in the early 2000s or again two decades later.

Unlike state-owned firms, private owners would have been under little obligation to sell petrol, diesel or LPG below market prices or absorb prolonged under-recoveries in the national interest, they said.

"What that would have meant for a country as dependent on imported oil as India can only be imagined," one official said, arguing that public ownership has enabled the companies to prioritise energy security over profitability during successive crises.

Unlike purely commercial energy companies, India's state-run refiners are expected to fulfil a strategic mandate alongside generating profits.

Their nationwide footprint also enables governments to rapidly execute emergency policy decisions. Whether distributing subsidised LPG cylinders during the pandemic, ensuring diesel availability during natural disasters or managing inventories during periods of global supply disruption, public sector companies have often functioned as an extension of the state's crisis-response machinery.

That strategic role has repeatedly complicated efforts to privatise them.

The Vajpayee government's attempt to privatise BPCL and HPCL in the early 2000s was halted after the Supreme Court ruled that parliamentary approval was required because the company had been nationalised through legislation.

Nearly two decades later, the Narendra Modi government revived plans to sell its majority stake in BPCL as part of a broader asset monetisation programme, but the process was shelved after prospective bidders withdrew amid market uncertainties.

Successive governments have continued to open fuel retailing to private players and encourage competition, but have stopped short of relinquishing control over the public sector companies that remain central to India's energy security architecture.

With India importing more than 88 per cent of its crude oil requirements and geopolitical disruptions becoming more frequent, policymakers increasingly view energy resilience as a strategic capability rather than simply a commercial business.

For investors, state ownership can sometimes constrain profitability through government-directed interventions. For policymakers, however, the same ownership provides something difficult to replicate through markets alone: an integrated nationwide energy network that can be mobilised at short notice when a crisis strikes.

Time and again, India's public sector oil companies have demonstrated that while their commercial role may be debated, their strategic value becomes most visible when the country's energy security is under stress, analysts added.