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The country’s public and private sector oil refiners are lobbying the government to compensate them for the investments made in producing and supplying BS-VI fuel, a government mandate which will take effect from April 1.
State-owned Bharat Petroleum Corporation Ltd will introduce the product officially in the market across India from March 1, the company’s director (refineries) R Ramachandran told the media today.
BPCL invested about ₹7,000 crore to upgrade its refineries to make the better-quality product.
To start with, BPCL and other refiners, will not price the product differently until the government backs their demand to charge extra for recovering their investments.
In the case of BPCL, the investment made to produce BS-VI compliant fuel would require a cost recovery of ₹0.70 paise per litre, while for others, it could be as much as ₹1.30 per litre.
Price parity
“Today, there is no extra pricing difference for BS-VI fuel,” Ramachandran said.
“There are discussions going on whether there will be extra pricing for BS-VI. As it stands today, there is no recognition in the market for a fuel which is different and its adding to our operating costs. Our aspiration is that we should be compensated for what we have invested. We are aspiring that the investment be built into the price and we should be getting an extra price,” he said.
This aspiration, according to refiners, may not be done by the “market” despite the de-regulation in fuel pricing and would require a support from the government on levying a “special price”.
“Price in the market is changing based on import parity. The retail selling prices are coming from the build-up; our price recovery — if you look at it from the refinery perspective — is based on import parity price. The import parity price has nothing to do with recovering the cost of investment. So, unless there is an artificial mechanism which actually provides that irrespective of the change in the (market) price, then only I’m going to recover the investment,” Ramachandran said.
Govt support
The government has to take a view on average pricing of BS-VI fuel.
BPCL reckons that it should be assured of an extra income of ₹0.70 paise per litre for BS-VI fuel for eight years to recover its investment.
“This is a policy matter on which it is difficult to make any predictions whether somebody will make this happen or not. I have seen this in the European Union, where the governments have been encouraging refineries and retailers to upgrade their product quality by a compensation mechanism which could be tax rebates, cess or viability gap funding,” Ramachandran said.
“All of us including the private refiners are together on this, we would like to see this happen,” he added.
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