BS VI petrol, diesel likely to pinch more due to higher refining costs

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Highlights:
– The price rise may be between a few paise and Rs 2, which is likely to be charged as a special cess or duty
– In 2016, the government decided to meet the global best practices and leapfrog to BS VI norms, skipping BS V

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Customers may have to shell out more for petrol and diesel from April as fuel retailers are looking to pass on the higher cost of producing Bharat Stage VI-compliant fuel, said two senior officials at the companies.

This would help the state-run fuel retailers recoup their investments in upgrading their refineries to produce the cleaner fuel, the officials said, requesting anonymity. They said a final decision would be subject to government approval. The refiners are estimated to have spent more than Rs 30,000 crore to improve their facilities, with India set to implement BS VI emission norms, the equivalent of Euro VI, from 1 April.

“We have made large investments in upgrading to BS VI and we need to get a return on our investments. This is only logical. The thought process is to recover cost and not profit-making,” one of the two officials cited earlier said on condition of anonymity.

The price increase could be anywhere between a few paise to a maximum of Rs 2, which is likely to be charged in the form of a special cess or duty,” said the second official. The Auto Fuel Vision and Policy 2025 in June 2014 had recommended a 75 paise cess to recoup additional investments projected for producing cleaner fuels.

“Pricing for petrol and diesel would be different and it will be averaged out according to what each company has invested,” the second official said. “The pricing would be decided closer to the launch and discussions are on to suggest to the government that we have made such huge investments and would like them to find a method for us to recover the same.”

Another increase in auto fuel prices would be a double whammy for consumers. Petrol and diesel prices rose by about Rs 2 each after the government imposed an additional special excise duty of Rs 1 per litre as well as a road and infrastructure cess of Rs 1 per litre on the fuels in the Union Budget for 2019-20.

“A fuel price increase is certainly required by the oil marketing companies given they have invested substantially to upgrade to BS VI. They need to recover at least their cost,” said K Ravichandran, Group Head for Corporate Sector Ratings at ICRA. “Though it will be an additional burden on the consumers, it would be beneficial for the environment as the fuel will help reduce pollution. However, if the extent of fuel price increase is anything more than Rs 1 per litre, it would be a stretch for the consumer given the Rs 2 per litre hike in prices recently on account of additional cess/duties.”

Retail prices of petrol and diesel in India are linked to their prices in global markets and not that of crude oil. However, the price of crude, which makes up about 90 percent of the cost of these refinery products, is the biggest determinant in their retail prices.

Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) did not respond to queries emailed on July 12. A spokesperson for Indian Oil Corporation said in an emailed response that the “pricing of BS VI (is) to be decided in due course”.

India is shifting to the stringent BS VI emission norms as the government seeks to arrest rampant pollution in most of its major cities. BS VI fuel is said to significantly reduce greenhouse gas emissions, especially carbon dioxide, unburnt hydrocarbons or methane and oxides of nitrogen. It has sulphur content of 10 parts per million (ppm) against 50 ppm in BS IV.

Emissions from vehicles are one of the top contributors to air pollution, which led the government at the time to introduce the BS 2000 (Bharat Stage 1) vehicle emission norms from April 2000, followed by BS II in 2005.

BS III was implemented nationwide in 2010. However, in 2016, the government decided to meet the global best practices and leapfrog to BS VI norms by skipping BS V altogether.

To ensure a smooth transition to the proposed emission norms, the automotive industry, along with its representing body, Society of Indian Automobile Manufacturers, has requested the fuel retailers to provide BS VI grade fuel at least 30-45 days ahead of the April 2020 deadline.

Pawan Goenka, Managing Director of Mahindra & Mahindra (M&M), said prices of BS VI-compliant petrol vehicles are likely to rise by Rs 25,000-50,000 and diesel vehicles by about Rs 1 lakh over the existing BS-IV models.

With prices set to rise, some automakers are rejigging their portfolio by either discontinuing diesel-powered vehicles or those which have low sales volume.

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