MRPL starts Euro-III auto fuel production

Mangalore Refinery and Petrochemical Ltd (MRPL) has started production and despatches of an improved grade of auto fuel that meets Euro-III emission norms, and expects to get a premium price for it.

The National Auto Fuel Policy (NAFP) of 2003 has a provision that mandates pumps in 11 major Indian cities, including the capital New Delhi, to offer fuel meeting the Euro-III auto emission norms by April 2005.

Sources in MRPL, a subsidiary of ONGC, said it was the first refinery in the country to produce the fuel ahead of schedule. MRPL has dispatched a consignment of 10,000 kilolitres (KL) of high speed diesel on December 31.

MRPL is in dialogue with oil marketing companies (OMCs) to work out the premium pricing for Euro-III grade auto fuel.

"Since it is a better quality product, a premium should be paid. Unless the pricing issue is sorted out, MRPL will not undertake large scale production of Euro-III compliant fuel," A K Balyan, director of MRPL, said.

The refinery has capacity to process 9.69 million tonne of crude and as is now operating at 120 per cent capacity utilisation.

MRPL has the ability to convert its entire capacity to produce Euro-III compliant fuel which offers clear emission benefits in terms of sulphur content.

OMCs may not be ready to pay a premium for Euro-III fuel as this can be treated as a policy decision that has to be decided by the government.

Balyan claimed there existed consumer demand for premium products like Euro-III fuel and buyers would pay more for it.

OMCs were currently selling improved grade fuels under sub-brands offering additional benefits at a higher price than ordinary fuel, and consumers were buying it.

ONGC will in any case be setting up with its first retail outlet (ROs) within this fiscal. It is likely to offer the Euro-III compliant fuel at its network of ROs.

According to estimates, production of the cleaner fuel by the mostly state-owned domestic oil refining units would require investments of up to Rs 300 billion (US$ 6.7 billion).

Automobile manufacturers will be spending another Rs 250 billion ($5.5 billion) to offer engines that met improved emission standards.

NAFP envisaged more stringent Euro-IV norms to be implemented by 2010.

Oil sector analysts said a premium price to recover additional investments on plant upgradation was accepted in the industry.

MRPL"s investment would have been in the region of Rs 600 crore, though the figure could not be confirmed.

IBOP is the only OMC in India today that does not own a refinery and it is due to be merged with its parent Indian Oil Corporation very soon anyway.

Other OMCs and private players like Reliance have refineries and all were putting in investments to upgrade units.

A premium price for Euro-III fuel would help them recover the additional investments.