Hurdle race begins for BS-VI switch

Auto component makers might need Rs 8,000-cr investments for April 2020 deadline

The Centre’s decision to leapfrog to Bharat Stage-VI emission standards by April 2020, directly from the current BS-IV, four years ahead of schedule, might entail an investment of at least Rs 8,000 crore from automobile component makers.

The companies feel the deadline is extremely tight; that apart, automobile makers say availability of BS-VI compatible fuel across the country is an area of key concern. However, the three government-owned oil marketing companies (OMCs) say they'll be ready on the deadline.

"We are taking all kinds of measures to comply with the government's directives," said a senior official in the refining wing of Indian Oil Corporation (IOC). “From the refineries side, the fuel will be made available before the April 1, 2020, deadline."

IOC has readied the project management consultant (PMC) for this.  "On our behalf, PMC contractors will issue the licence for engineering and other works. After that, construction of the BS-VI plants will begin, which will go on for two years.  By the end of 2019, we will be ready," the official stated. As on date, the Indian refining capacity is 215-220 million tonne a year, including the private sector.

The OMCs say the onus will be on car makers to find a way forward for BS-IV users after April 2020.  "Our job is to make the fuel and we are on track," the IOC official said.  At their refineries, 48 per cent of fuel is refined into diesel and 13-14 per cent into motor spirit (MS) or petrol.

A Tata Motors spokesperson said, "Our engineering teams have started working on critical programmes, given the short deadline." The availability of technology is not an issue. "However, the application to our vehicles is yet to be completed, as it was until recently planned for 2024."

The major investments needed for the upgradation, however, would come from vendors and, hence, most original equipment manufacturers (OEMs) did not wish to openly comment on the amounts needed. A senior official in the Automotive Component Manufacturers Association of India (ACMA) said on condition of anonymity that a combined investment of Rs 8,000 crore is easily estimated, as even two-wheelers would need to upgrade.

Bosch, Magneti Marelli, Denso and Federal Mogul, with strong presence in the powertrain segment and having developed solutions for the parallel Euro-VI norms, are likely to be the key players. What would be the major changes required for vehicles? "First, we need to calibrate the Diesel Particulate Filter to control particulate matter (PM) emissions and ensure reliability of the engine and emission control system in Indian conditions, followed by calibration of the NOx (nitrogen oxide) control system," said a Maruti Suzuki India spokesperson.

In BS-V, the industry would have addressed all the PM emissions with around 28 per cent NOx reduction; the rest of NOx would have been taken care of at the BS-VI stage, to the same level as petrol vehicles. For BS-IV, the sulphur content should not be more than 50 ppm (parts per million) in the fuel; for BS-VI, the cap goes down to 10 ppm.

"We will have to tweak our product plans. For the existing models, a transitory provision has to be allowed. If you use BS-IV fuel in a BS-VI engine, durability and quality will be impacted," said Maruti.

Another fallout of the current move is that OEMs  with higher dependence on diesel models might accelerate their focus on the petrol segment. As rating agency ICRA puts it, "Overall, the proposed emission standards will push vehicle prices upwards, with the diesel segment likely to witness sizable cost increase due to introduction additional components. This would make diesel passenger vehicles (PVs) costlier (vis-à-vis petrol variants) and consequently deter demand for these."

Anil Sharma, analyst at IHS Automotive, said: "The move away from diesel is already underway, with conditional bans which are encouraging buyers to look away from diesel. More than OEMs, it appears this change will be driven by consumers, although we do foresee phasing out of some models due to new regulations"

The IOC official said while pricing of BS-VI will depend on the then crude oil prices, the processing cost of BS-VI will increase, as it requires more hydrogen for removal of sulphur content from the fuel.  "Currently, hydrogen costs are three times higher than naphtha," he said.

The ICRA analysis states, "The refinery sector will also have to incur investment upwards of Rs 2.9 lakh crore to upgrade its capacities...To fund this, an average price hike of around Rs . 0.3/litre would be needed, to generate adequate return on incremental investments."