Oil companies seek mechanism to pass through BSVI upgrade cost

State-run Bharat Petroleum Corporation (BPCL) and other oil marketing companies are in informal discussions with the government for pass-through of costs incurred over upgrading to higher emission norms. 

As part of India’s attempt to curb air pollution by vehicles, fuel and automobile makers have to migrate to BS-VI from BS-IV norms from April 1. 

Oil companies are expected to make BS-VI fuel available to ensure a smooth transition. BPCL will roll out BS-VI fuels at all its outlets from March. “We have represented that we should be compensated for what we have invested,” BPCL Director (refineries) R Ramachandran. He said if these investments were to be converted to litre cost, it would range between 70 paise and Rs 1.30, depending on which oil company it is. “We are aspiring that it should be built into our price.” 

Indian Oil Corporation, which has already covered around 50 per cent of its outlets, plans to wrap the entire network by mid-March.

Ramachandran said there were informal discussions between oil companies and the government for a mechanism to recover these costs. “No formal representation has been made,” the executive said, adding there was precedence in other countries where similar costs had been passed on through a special cess. 

For BPCL, the director said the total investment in upgrade of refineries stood at Rs 7,000 crore and 70 paise a litre might be the average cost recovery over a plant’s life. This is not the first time oil firms have raised the cost concern over BS-VI upgrade. Indian Oil Chairman Sanjeev Singh was quoted in January that though the exact quantum was being worked out, the increase might be anywhere between Rs 0.50 and Rs 1 a litre. 

Irrespective of whether a special mechanism is allowed or not, oil executives are hopeful the market will find its own pricing over a period of time. “Then we will know if there is a return (on the investment) or it is an investment for staying in business,” Ramachandran said. 

On the impact of the outbreak of coronavirus, the BPCL executive said: “This is an opportunity for the Indian oil industry. China has rejected a considerable amount of crude.” He said this had led to a significant increase in the availability of crude, including crude from African markets, allowing discounts of up to $5 a barrel to prevailing crude prices in some cases.