The Hindu Business Line : Refiners not ready to supply BS-II diesel from April 1 — Auto industry worried that new vehicle norms deadline may change

Industry & Economy - Automobiles

Refiners not ready to supply BS-II diesel from April 1 — Auto industry worried that new vehicle norms deadline may change

Shyam G. Menon
Archana Chaudhary

Mumbai , March 8

THE domestic automobile industry's rendezvous with April's new vehicle norms is turning out to be truly worrisome with the oil industry unable to supply higher grade diesel by the switchover deadline and manufacturers already into making vehicles that run on the improved fuel.

Should the deadline be postponed, it could impose severe difficulties on manufacturers, particularly, inventory pile up. A reversal to making earlier models can happen only at cost, they said.

The automobile industry has been abuzz with talk of oil refiners seeking a deferment of the April 1 deadline with supplies throughout the market ensured only in a phased manner, likely six months.

As known, 11 major cities are set to graduate from the existing Bharat Stage (BS)-II emission norms to BS-III while the rest of the country will move up from BS-I to BS-II. Stricter norms for vehicular noise and safety also come into force. Given the rise in raw material cost and additional cost from complying with the norms of April 1, fiscal 2006 will be one of price revision.

Industry officials had expressed concern on how the higher costs would affect demand in a market flooded with price discounts. The BS-II diesel shortage is atop this. The total retail market for diesel is pegged at 30 million tonnes and April's switchover implies supplying roughly 2.5 million tonnes of upgraded diesel every month.

"The oil industry will not be in a position to supply Bharat Stage II diesel for the entire country by April 1, 2005. The problem has arisen because many refineries have not been upgraded to produce BS-II diesel and although we are prepared to meet supplies through imports, it is not available even in the international markets.

"We will have to stagger supplies to Rajasthan, Western Uttar Pradesh, Uttaranchal, Punjab, Himachal Pradesh and Jammu & Kashmir," Dr N. Kannan, Director (Marketing), Indian Oil Corporation, said.

This is troubling auto industry officials because manufacturers have weaned off making BS-I vehicles citing April's norms. "If there is going to be a deferment, then we should be told of it immediately as we are already geared up to produce the new vehicles and can revert only with great difficulty," Dr Pawan Goenka, Chief Operating Officer (Automotive Sector), M&M, said on Tuesday.

"The situation will be difficult if the April deadline is not met," Mr P. Balendran, Vice-President (Corporate Affairs), General Motors India, said.

Some of those contacted favoured switchover to new norms on a single day as opposed to the staggered pattern mooted by refiners.

"We are watching the developments and will respond with the flexibility we have," Mr Praveen Kadle, Executive Director, Tata Motors, said.

That trouble could be at hand if the compliance deadline slips, was confirmed by a senior official of the Society of Indian Automobile Manufacturers (SIAM) as well. According to him, SIAM is yet to officially hear from the Government on the oil sector's ability to supply the BS-II grade diesel nationwide.

As he put it, the regulations in place mandate that manufacturers comply with BS-III and BS-II standards from April.

"So, technically speaking, you can't sell in April if you don't comply," he said. On the other hand, such vehicles cannot run on low quality fuel without serious damage to their pollution control systems.

Besides, in the event of a vehicle being manufactured to earlier emission norms, it would still need to comply with the new noise and safety norms.

"The compliance must happen over a day and not in a phased fashion," one senior industry official insisted.

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