Energy transition fund in crude oil sector unlikely to make return

Petroleum ministry had requested to reinstate the fund in Union Budget

A mega fund for energy transition in the crude oil sector, earlier promised and subsequently scrapped, is not expected to return anytime soon, officials from the Ministry of Petroleum and Natural Gas have said. 

The fund, intended to focus on investments in new-age fuels — such as green hydrogen, ethanol, and other biofuels — had been requested to be reinstated by the petroleum ministry in the upcoming annual Budget. The Budget for 2023–24 (FY24) initially earmarked a capital outlay of Rs 30,000 crore for priority investments in projects aimed at energy transition, energy security, and achieving net-zero emissions by 2070. However, this allocation was never disbursed. The Interim Budget presented in February 2024 halved the fund to Rs 15,000 crore, and in the July Budget, it was scrapped entirely. The equity infusion was deferred to the next financial year (2024–25). 

Officials indicated that the fund is unlikely to return soon, citing reservations from the finance ministry. 

“The withdrawal of such a substantial fund could delay the energy transition for these companies by slowing their investments in renewable energy, electric vehicle infrastructure, and other green initiatives. Additionally, this move could undermine investor confidence in the government’s commitment to achieving net-zero emissions by 2070, potentially discouraging future investments in the sector,” said Raju Kumar, energy tax leader at EY. 

Given the critical role oil-marketing companies (OMCs) play in India’s energy landscape, their energy transition road map should be clearly defined, setting an example for private-sector players to follow, Kumar added. 

Although the government has not provided specific reasons for withdrawing the allocation for OMCs, an analysis of market and industry reports suggests the decision may stem from their recovery of losses and the reporting of robust profits. The combined profit of public-sector OMCs — Indian Oil Corporation (IndianOil), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL) — rose to Rs 86,000 crore in FY24, over 25x higher than the preceding year. In 2022–23, a combined profit of Rs 20,224 crore by IndianOil and BPCL was offset by a loss of Rs 8,974.03 crore by HPCL. 

Transition underway 

Nonetheless, all OMCs have already initiated measures towards energy transition. 

The companies are currently drafting a comprehensive plan to ramp up green hydrogen production. Under the Centre’s Rs 19,744 crore Green Hydrogen Mission, mandatory procurement of green hydrogen has been stipulated for various sectors, including refineries. 

The OMCs have also started producing ethanol from bio-residue and agricultural waste. This plan aligns with the Centre’s long-term target of achieving higher levels of ethanol blending with petroleum. The retailing of E20, or petrol blended with 20 per cent ethanol, is now nationwide.