Leap to BS-VI will raise output cost of fuel

IOC will have to bear Rs 1.40 a litre more for petrol and 63 p more for diesel

The government's latest decision to leapfrog from Bharat Stage (BS)-IV automobile fuel quality standards to BS-VI by 2020 will raise Indian Oil Corporation (IOC)'s production cost of petrol by Rs 1.40 a litre and of diesel by 63 paise.

The country's largest fuel retailer would also have to spend Rs 21,000 crore to upgrade six refineries to produce BS-VI-grade petrol and diesel. This includes Rs 7,000 crore to upgrade fuel quality from BS-III to BS-IV by next year and Rs 13,000-14,000 crore to upgrade fuel quality to BS-VI, said Sanjiv Singh, company's director-refineries.

He declined to specify the expected increase in retail prices of petrol and diesel as a result of the increased cost of production. "These are ballpark figures. We will not charge anything extra but the cost of production will go up," he said, adding the final impact on retail prices would be determined by other factors such as global crude oil prices and taxes.

The government had last week announced switching from BS-IV emission standards for automobiles to stricter BS-VI by April 1, 2020. All public sector refineries would have to invest Rs 28,750 crore to upgrade capacities. Singh said the task of switchover was "extremely challenging" as it might require changing the crude mix of some refineries, ramping up capacities under expansion projects and even changing the product streams for some units. "But, we are confident we will meet the target," he said.

India has BS-III norms across the country now and BS-IV in metro cities. BS-IV will be supplied in most big cities by April 2016, and all over the country from April 2017. BS-IV auto fuels are being supplied to the whole of north India.

Singh said IOC would set up India's biggest oil refinery on the west coast with the other two oil marketing companies - Bharat Petroleum and Hindustan Petroleum. "The concept has gone beyond the thinking stage. The capacity will be bigger than 15 million tonnes (mt)," he said, without sharing the details of the location and the investment. IOC recently started a 15-million-tonne refinery at Paradip in Odisha, the biggest public sector undertaking refinery in the country.

IOC operates six refineries of 54 mt, along with subsidiary refineries with 11 mt. The company's refining capacity will go up to 80 mt once the Paradip unit is fully commissioned.