BS VI IN DELHI. On the fast lane to cleaner fuel

In just two days from now, Delhi will become the first city in India to retail Bharat Stage VI petrol and diesel across its fuel outlets.

However, April 1 would just be an official date, given that supply has been on for some days now. It is more than likely that Delhi’s residents are blissfully unaware that they have been filling their vehicles with cleaner fuel.

This goalpost marks an astonishing achievement for oil refining companies, which have readied BS VI auto fuels in record time considering that the deadline is actually a good two years away. Following complaints of excessive air pollution in Delhi, the Petroleum Ministry decided that one way to combat the menace was to have cleaner fuel in place two years earlier.

To jump directly from BS IV to BS VI in a small timeframe is not an easy task and it is to the credit of IndianOil, Bharat Petroleum Corporation and Hindustan Petroleum Corporation that their top teams pulled out all stops to meet the deadline. Since investments would have been quite considerable and running into thousands of crores of rupees, it remains to be seen if the new era of BS VI will translate into customers paying more for fuel.

Oil price concerns

Given that BS IV petrol and diesel are already burning a hole in their pockets with price tags of over ₹75 and ₹65 per litre respectively, a further increase could only end up hurting them more. Globally, crude oil prices are already at over $70 per barrel and it is almost impossible to predict if they will continue to escalate.

While some energy experts believe that this will not happen, others are not so sure. After all, oil is still largely a political commodity where economics plays a smaller role in contrast. And given that the world has become more unpredictable lately with tensions rising across the US, Europe, China, Russia and North Korea, there is no telling what impact this will have on oil prices.

Thus far, the BJP-led government has had it easy, with a large part of its tenure witnessing benign crude price levels of $40/barrel before the recent spurt happened. This is a dramatic fall from the highs of $150/barrel in 2008-09 when things went completely out of control.

The fall in crude prices also allowed the Centre to deregulate prices of petrol and diesel, which effectively meant that there would no longer be subsidised but determined by global market trends. The fact that crude prices are now on the increase will mean that the customer will just have to be ready to fork out a lot more for auto fuel. While the personal car/two-wheeler buyer may still grin and bear it, it is a different ballgame for truck fleet operators, where pricier diesel has the potential to stoke inflation.

Pan-India BS VI compliance

Getting back to the subject of BS VI, the process of covering the rest of the country will now gain traction. Typically, this will mean going beyond Delhi to Haryana, Uttar Pradesh, Bihar, Rajasthan, Gujarat and Madhya Pradesh. Maharashtra and the southern states will follow along with West Bengal, Orissa and the northeast region.

This distribution plan, in turn, is based on the locations of the PSU oil refiners as well as their private sector counterparts (Reliance and Essar). For instance, IOC has facilities in Panipat, Mathura, Koyali (Gujarat), Paradip and the northeast while HPCL’s refining presence spreads across Bhatinda, Mumbai and Vizag, with BPCL in Bina (Madhya Pradesh) Mumbai, Assam and Kochi. Reliance and Essar have refineries in Gujarat.

Between now and April 2020, the entire country will be BS VI-compliant and the auto industry will ideally hope that supplies of petrol and diesel are ready at least six months prior. This is because engine ancillary suppliers would need this time for testing and validation, especially when it involves critical equipment like fuel injection.

Where do auto-makers stand?

As in the case of the oil companies, auto-makers will also be investing substantially on technology during the transition to BS VI. This means that their end products will become dearer too, which is a challenge in a price-sensitive market like India. How they manage to strike the balance between costs and quality is the big challenge going forward.

In the two-wheeler category for instance, Honda is reasonably confident that the BS VI regime could mark its technological supremacy in fuel injection engines. The company has made no bones about its intent to emerge the top player ahead of its erstwhile ally, Hero MotoCorp, which is still ahead.

Honda now believes that its global competencies along with the advantage of large volumes will help it tide over the BS VI costing challenge and, in the process, convey a clear message to customers that it is the leader here. How things pan out eventually remains to be seen, especially when other two-wheeler makers like Hero, TVS, Bajaj and Yamaha are not going to be complacent either.

This holds equally true for car-makers where every player will go the extra mile in meeting the cost challenge. To that extent, the buying dynamics in the personal buying space will be completely different from commercial vehicles, where the end user’s top priority is profitability.

A truck owner, for instance, will be concerned about the return on investment from the vehicle and it is, therefore, reasonable to assume that there will be brisk buying through this fiscal and during 2019-20.

Once BS VI becomes a reality pan-India, trucks will become more expensive and manufacturers will prepare themselves for stiff buying resistance through 2020-21. They will, in all likelihood, plan for smaller inventories while going flat out with production of BS IV trucks during the next two years.

By the end of the day, the move to BS VI will be a big moment for India’s energy ecosystem. It is no small feat jumping directly from BS IV to BS VI nationwide in barely three years considering that even advanced nations have not tried something like this. The oil companies and auto industry have their work cut out and the biggest reward for everyone is the prospect of breathing easier in a cleaner ecosystem.

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