Economy

CNG retro-fitment industry stares at uncertain future in BS-VI era

Nandana James | Updated on February 19, 2020 Published on February 19, 2020

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While the aftermarket is shrouded in uncertainty due to the impending BS-6, this could be a boon for OEMs to tap into the CNG segment

Even as the deadline for the new BS-VI emission norms looms closer, the future of the compressed natural gas (CNG) retro-fitment industry is shrouded in uncertainty as the rules for the industry under the stricter emission regime is still being processed by the government. Amarjeet Singh, who has been in the business of manufacturing and retrofitting CNG kits in vehicles since 1999, fears that the industry will face the axe, leading to rampant unemployment.

His apprehensions are further fraught with talks of a possible ban on retrofitting CNG in the BS-VI era, which other players like him are scrambling to confirm. “There is no clarity on the ban — it’s just an intuition. But, it can happen since the government is favouring private players nowadays,” said Singh.

Two industry executives close to these developments told BusinessLine, on condition of anonymity, that BS-VI vehicles cannot be retrofitted with CNG kits.

This is because CNG BS-VI vehicles would require a special catalyser which can only be factory-fitted, according to one of the sources. “The government has to make a decision ultimately whether to allow retro-fitment or not. If they allow retro-fitment, then the question will be whether those vehicles will be BS-VI compliant,” said the person. The rules are currently being framed, the source added.

However, officials from the International Centre for Automotive Technology (ICAT), one of the deciding agencies when it comes to this matter, denied that there is going to be any such ban.

Dinesh Tyagi, Director, ICAT, said the Ministry of Road, Transport and Highways is in the process of notifying the technical requirements for CNG retro-fitment under the BS-VI regime and that these will be issued shortly. There will be no ban on retro-fitment whatsoever, but the norms could definitely be stricter in comparison to what they had to comply with under the BS-VI regime, he added.

Pamela Tikku, Chief Business Officer, ICAT, explained: “No, we cannot kill the retro-fitment business (with a ban), but we are under the process of formulation of regulations for retro-fitment of CNG kits. I am not saying it won’t be allowed, the government has decided to frame the regulations and framework under which retro-fitment will be allowed, which has not been finalised yet.”

The requirements under BS-VI emission norms will pose “certain technical challenges”, she said, adding that “a way out” will have to be found, and this is what the impending notifications will address.

Out of the over 1.6 million CNG light vehicles — which includes passenger vehicles and light commercial vehicles — plying the roads today, 60-65 per cent are those retrofitted in the aftermarket, pointed out Suraj Ghosh, Principal Analyst, Powertrain & Compliance Forecasts, IHS Markit. Under the CNG retro-fitment technique that is followed, the gas tank, fuel lines, injection system and the electricals are retro-fitted on to a vehicle which wasn’t designed for CNG, he said.

Supreme Court ruling

The reason why retrofitted CNG vehicles overshadow the OEM fitted ones in number can be traced back to a 1998 Supreme Court ruling which mandated that all commercial passenger vehicles in Delhi must run on CNG. “This made most fleet owners rush to the aftermarket kit manufacturers and installing agencies to get their vehicles retrofitted with CNG rather than buy new CNG vehicles,” explained Ghosh. Delhi-NCR accounts for almost one-third of the total CNG numbers, he added.

Even as the possibility of a ban remains uncertain, Singh fears that the authorities might make the rules under BS-VI for retrofitters like him so stringent that they will render it unviable for BS-VI vehicles to be retrofitted with CNG. Currently, most players are in the process of seeking approval for the retro-fitment of CNG in BS-VI vehicles, as the norms for this are still being processed, affirmed all the players BusinessLine spoke with.

If a ban happens, players in the aftermarket like him will form an association, and may file a case in the court to appeal against this, said Singh. He added that by March end, they will get to know if the ban is happening or not.

Adding to their woes is the increased costs that the BS-VI emission norms will entail. Singh said the cost of conversion of a BS-VI vehicle to CNG might come up to ₹70,000, as opposed to the current ₹40,000 under BS-4, and this can deter people from opting for retro-fitment, which is already under strain.

“The OEMs were able to tap the into CNG segment because of the retro-fitment market. The retro-fitment market entered in 1994, and OEMs actively started participating in CNG since 2011 — before that they were sleeping. The OEMs were able to capture the CNG market only because of the retro-fitment market. Now it is happening vice-versa…OEMs might work with the Automotive Research Association of India (ARAI) and ICAT and make tougher norms for the retro-fitment market, so that approvals will be difficult, and retro-fitment doesn’t happen,” he lamented.

True to his words, this could be a blessing in disguise for OEMs to tap into the CNG segment, as the two sources cited above pointed out.

The BS-VI opportunities

BS-VI poses other opportunities as well for OEMs when it comes to CNG vehicles.

The phasing out of small diesel vehicles by most OEMs can lead to a greater demand for CNG vehicles due to lower cost of ownership as well as cost of acquisition of CNG vehicles when compared to BS-VI diesel variants, said Hetal Gandhi, Director, CRISIL Research. CNG is unlikely to completely replace diesel demand but it will certainly gain a major volume of the fleet market, said IHS Markit’s Ghosh.

Maruti Suzuki, the first OEM in 2009 to roll out factory-fitted CNG vehicles, is also betting on CNG models, especially post the enforcement of the BS-VI emission norms. Maruti has a target of sales of 1,55,000-1,60,000 CNG cars for the next fiscal year. By the end of this fiscal, its CNG sales are expected to touch around 1,05,000 units.

Shashank Srivastava, Executive Director - Marketing and Sales, Maruti Suzuki, said that when it comes to factors like safety, security, fuel efficiency, driveability, suspension, longevity and warranty conditions, the pros of factory-fitted CNG vehicles outweigh those of retrofitted ones.

With the price of diesel vehicles set to be privy to a steep price hike post BS-VI, the diesel share will be dropping further. “What should replace diesel? It should be some fuel which is cheap to run...So CNG is a very good option in that sense,” said Srivastava.

“CNG vehicles have manifold benefits, including those for the environment. CNG vehicles have zero per cent particulate matter, 20-30 per cent less emission of CO as compared to internal combustion engines and are affordable. Since CNG is cheaper, it can fuel 20-40 per cent of cars by 2030 and reduce the the import bill of oil,” he said.

Currently Maruti Suzuki is offering CNG options in eight models and, going forward, it will have at least one CNG variant for all small cars, he said.

“The deciding factor for the growth of CNG vehicles is the CGD (City Gas Distribution) network of CNG. The faster the CNG distribution network grows, thefaster will be the adoption of CNG vehicles,” he said. The only factor that has hindered the growth of CNG car adoption in the country is the lack of widespread CNG gas infrastructure, he added.

The government’s decision to have 10,000 CNG gas stations in the country by 2030, up from the current 1,700, will give a boost to the growth of CNG vehicles across India, said Srivastava.

The Society of Indian Automobile Manufacturers (SIAM), in its March 2019 ‘White Paper on Alternative Fuels for Vehicles’, stated that for CNG, even with a lack of infrastructure today, there are estimated to be around 3 million vehicles running in various parts of India. These vehicles would be displacing roughly 2,000 million litres of gasoline fuel every year and, with the growth of CNG infrastructure, the savings can be significant, it said. SIAM expects the government to deploy 6,000 CNG stations by 2025 and 10,000 stations by 2030 for catering to a vehicle parc of 20 million CNG vehicles, it further stated.

“CNG is an important fuel for India. We should have a very equitable focus on various options which we have, whether it is ethanol, CNG, LNG or electrification. We should not push for one technology option. We should give a technology-agnostic platform and, depending on the virtues, benefits and advantages of one particular one, it will pick up in the market,” said a source.

Meanwhile, even as the future remains hazy for players in the CNG retro-fitment business, most remain hopeful. A Kerala-based CNG kit manufacturer and retrofitter is positive that the industry just has to await approvals for BS-VI CNG retro-fitment. Once that is done, BS-VI vehicles can be retrofitted with CNG, he said, echoing the sentiments of most players BusinessLine spoke to.

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Published on February 19, 2020
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