Hefty dividend payouts derail energy transition

The global trend is that oil companies are slowly moving into renewables.
For representational purposes (File | Reuters)
For representational purposes (File | Reuters)

NEW DELHI: Large dividend declarations by state run oil companies have left them with little cash to diversify and invest in low carbon alternatives, Moody’s said on Monday.  

The rating agency added that while there has been significant investment in renewables by private and other state-run firms, the state-run oil companies have not been able to invest in this area. “The Indian government has also been extracting large shareholder payouts from its National oil companies (NOC) leaving little cash surplus for them to meaningfully invest in low carbon alternatives,” the rating agency said.

State-run oil explorer ONGC paid out a 140 per cent dividend in 2018-19, while it has already announced an interim dividend of 100 per cent for 2019-20. Similarly, Indian Oil paid a total of 92.5 per cent as 
dividend for 2018-19 and an interim dividend of 42.5 per cent for 2019-2020. 

The global trend is that oil companies are slowly moving into renewables. Nearly $9 billion will be invested by Norwegian state run firm Equinor. While French major Total plans to double its gross global renewable energy capacity to six gigawatts (GW) from just a year ago. Moody’s said that though India’s energy strategy aims to reduce its hydrocarbon imports by increasing use of renewables, “however, India’s consumption of fossil fuels, under its stated policies, will continue to increase and so will its imports of oil and gas until at least 2040.” 

India is the world’s third-largest consumer of oil.“Given that the country expects its consumption of oil and gas to continue to increase, the government is unlikely to authorize a meaningful change in the business model of its NOCs,” it said, adding “If the prices of oil and gas decline, following an accelerated or disorderly carbon transition, to such an extent that makes capital structures of these companies unsustainable, we expect the NOCs to rely on support from the government.”

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