Refiners face $13 billion clean fuels bill

By Nidhi Verma

NEW DELHI (Reuters) - Oil refiners will need to invest 800 billion rupees ($13.4 billion) in upgrades to produce cleaner fuels, a government official said, as the world's fourth biggest oil consumer seeks to curb dire air pollution in its cities.

The World Health Organization, in a recent study, said air pollution in New Delhi was the worst anywhere, while 13 of the dirtiest 20 cities were in India.

Economic growth and urbanisation in the country of 1.2 billion will lengthen traffic jams on already-choked city roads, increasing the need for action to minimise health risks such as cancer, strokes and heart disease.

"We are doing all this for public health now that there is sufficient evidence on the ground to suggest that ambient air pollution has deleterious effects on human health," said Saumitra Chaudhuri, head of a government panel tasked with proposing new fuel standards.

Chaudhuri, who is also a member of the Planning Commission, said he hoped that the next government would consider the panel's recommendations.

Results of a general election are due on Friday and exit polls give the opposition Bharatiya Janata Party (BJP) and its prime ministerial candidate Narendra Modi a good chance of securing a parliamentary majority together with its allies.

"We are more concerned with the environment and we want people to have better quality of life which also includes better quality of air," said Narendra Taneja, a BJP energy policy coordinator, saying his party would seek a "holistic solution".

The proposed changes would take effect in two stages, with the introduction of fuels that are equivalent to the Euro IV standard from April 2017, followed by a further step up to the Euro V standard in April 2020.

India lags China in switching to higher-quality fuels, with Beijing aiming for nationwide use of Euro V fuels from 2018. China began full scale use of Euro IV compliant gasoline from this year and will shift to Euro IV diesel from next year.

Europe, meanwhile, already requires Euro V and VI standards.

These set increasingly tight limits on harmful gaseous pollutants and particulate matter, with separate requirements applying to different types of diesel and petrol engine.

About three dozen cities currently use Euro IV equivalent fuels, also known as BS IV fuels, while motorists in the rest of the country use BS-III fuel.

BS-V require gasoline to have a sulphur content of 10 parts per million (ppm) down from 50 in BS IV and 350 ppm and 150 ppm sulphur in BS III diesel and gasoline.

There were about 160 million vehicles on India's roads on March 31, 2012, according to a government website.

According to a report for the government, India consumes about 69 million tonnes a year of diesel - of which 70 percent is accounted for by the transport sector - and about 17 million tonnes of gasoline.

LEVY TO FUND UPGRADE

Chaudhuri said the $13.4 billion figure covered all refineries excluding Reliance Industries, owner of the world's biggest refining complex.

With this hefty and timely investment Indian refiners should be able to produce Euro V-type fuels from December 2019, enabling a smooth switch from the following April and avoiding costlier imports.

Indian refiners had to import Euro IV fuels in 2010 when India introduced them in some parts of the country.

Chaudhuri said in the first phase BS-V fuels will be introduced in northern India in April 2019. Officials at Indian refiners said that most of the investment costs would be linked to producing BS-V fuels.

Officials at state refiners said they need to install new secondary units like desulphurisers, hydrotreaters and change the catalyst of the existing units to enable existing refiners to produce Euro V compliant fuel.

Indian Oil Corp, the country's biggest refiner, will invest about 80 billion rupees, while Hindustan Petroleum Corp will invest 50-60 billion rupees, sources at the two companies said.

To aid state refiners, which rely on subsidies to sell fuels at regulated prices, the committee has recommended that a cess, or levy, of 0.75 rupees a litre be imposed to help raise 650-700 billion rupees over seven years, Chaudhuri said.

He said the committee has also recommended a similar cess on BS III compliant fuel in the intervening period to bridge that price gap that may spur use of the inferior fuel.

($1 = 59.7800 Indian Rupees)

(Reporting by Nidhi Verma; Editing by Douglas Busvine and David Evans)