Oil companies seek mechanism to pass through BSVI upgrade cost

State-run Bharat Petroleum Corporation Ltd (BPCL), along with other oil marketing companies, are in informal discussions with the government for a pass-through of costs incurred over upgrading to higher emission norms. The company will roll out BS-VI fuels at all its outlets starting March this year.

“We have represented that we should be compensated for what we have invested,” R Ramachandran, director for refineries at BPCL, said today.

He added if these investments were to be converted to litre cost, it would range between 70 paise to Re 1.30, depending on which oil company it is. “We are aspiring that it should be built into our price.”

Indian Oil Corporation Ltd (IOCL) that has currently covered around 50 per cent of its outlets already, plans to cover the entire network by mid-March.

Ramachandran said there are informal discussions between oil companies and the government for a mechanism to recover these costs. “No formal representation has been made,” the executive added. He said there was precedence in other countries where similar costs have been passed on through a special cess. For BPCL, the director said the total investment in upgrade of refineries stands at Rs 7,000 crore and 70 paise a litre may be the average cost recovery over a plant’s life.

This is not the first time oil companies have raised the cost concern over BSVI upgrade. Sanjeev Singh, chairman for Indian Oil, on January was quoted that though the exact quantum is being worked out, the increase may be anywhere between Rs 0.50-1 a litre.

Upgrade to BS VI norms is part of India’s attempt to curb air pollution by vehicles. Part of this effort, starting April this year, only BS VI fuel compliant vehicles will be permitted to be sold and registered across the country. Oil companies are expected to make BS VI fuel available to ensure a smooth transition to these new norms.

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,” Ramchandran said.

Under government rules, fuel and automobile makers have to migrate to BS VI from BS IV norms from April 1.

On the impact of the outbreak of Corona-virus, the BPCL executive added, "This is an opportunity for the Indian oil industry. China has rejected a considerable amount of crude.” The official said this has 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.