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.