India moves by road. It has the world’s second largest road network, with more than 59 million kilometres of road. India has a road density of 1.7 km of road per sq km of land and a road penetration of 4.63 km of road per thousand population.

Roads are also the economic lifeline of the nation. More than 65 per cent of all freight and 85 per cent of all passenger traffic in India moves by road.

Keeping this immense network on the move means ensuring that every type of vehicle out there powered by an internal combustion engine — from “jugaad” haulers to Lamborghinis, from mopeds to 36-wheel articulated trucks — has to have access to the precise type of fuel it requires. What’s more, this fuel has to be available on demand, 24X7, across this unimaginably vast network in a country the size of a sub-continent.

This job has been, and is being done by India’s fuel manufacturing and marketing set-up, which is largely in the public sector. Of the 23 refineries in India, 18 are in the public sector. Of the estimated 65,000-odd fuel outlets in India, more than three-quarters belong to public sector oil marketing companies.

Now consider this: this entire, complex supply chain, stretching from the deserts of West Asia to the remotest outlet in the Andaman Islands, has, come April 1, 2020, to switch from fuel meeting BS Stage IV emission norms to BS Stage VI emission norms. Overnight, with no exceptions, as per a Supreme Court order.

Logistical nightmare

It is a production, distribution, marketing and logistical challenge that is perhaps unparalleled in the world. Yet, astonishingly, India’s much-maligned public sector is actually on the verge of pulling it off — the first-ever successful attempt by any country in the world to transit from Euro IV (BS-IV) to Euro VI (BS-VI) equivalent in one go.

“We have fulfilled the commitment that Prime Minister Narendra Modi made at the COP21 conference, in 2015, in Paris. We pre-poned (sic) the entire process. Leapfrogging from BS-IV to BS-VI was not a small task. There were some apprehensions on whether we will be able to achieve it, but we have completed it,” says Dharmendra Pradhan, Minister of Petroleum and Natural Gas.

In fact, oil refining-cum-retailing companies here claim that they have already flushed BS-VI fuel in most parts of the country, much before the deadline of April 1, 2020. The date April 1 will just be a token to notify or declare that the country is BS-VI compliant.

“Although the target date is April 1, 2020, almost all the refineries started supply of the fuel all over the country from September to December 2019. This was to enable the flushing out of the BS-IV fuel from the refinery storage, tanks, pipelines, marketing depots and retail outlets,” says RK Malhotra, Director General, FIPI (Federation of Indian Petroleum Industry), who was closely involved with the entire process.

A senior official of the Petroleum and Natural Gas Ministry observes, “Yes, it was a task, but kudos to the refineries to have been able to do so. They not only had to keep upgrading the refineries but also ensure that there were no supply disruptions in the market as they flushed out BS-IV and moved to BS-VI in the network. The entire flushing process took 260 days.”

Crunched timeline

While from refinery to depot, the fuel mostly is moved through pipeline networks, the last-mile connect to retailers happens through road — by tankers. Nobody knows how many tankers there are but industry estimates put the number at close to 12,000. And each and every one of them had to be cleaned and recalibrated. By April 1, 2020, insist oil marketers, the entire network as well as tankers would have been cleaned up and have only BS-VI grade fuel.

India’s transition to BS-VI fuel was an ambitious decision, as it had decided to leapfrog to BS-VI from BS-IV quality in just about three years, skipping BS-V.

The Ministry of Road Transport & Highways issued a notification on September 16, 2016, mandating mass emission standard for BS-VI throughout the country from April 1, 2020. The Supreme Court on October 24, 2018, ordered that no new motor vehicle conforming to the emission standard BS-IV will be sold or registered here from April 1, 2020.

This effectively gave the refiners just under a year-and-a-half to change. “In earlier cases, the norms were implemented first in the major cities and subsequently all over the country — staggered out — while BS-VI has been rolled out all over the country in one go,” Malhotra points out.

Recounts Malhotra, who was formerly Director (Research & Development) at IndianOil, “The first initiative of having a National Auto Fuel policy was taken during 2001 by the then Minister of Petroleum and Natural Gas, Ram Naik, when he appointed the Mashelkar Committee with which I had the privilege to be associated from IndianOil.”

“Though the recommendation to implement Euro II and Euro III equivalent Bharat Stage II & III norms were gradual — to be implemented in subsequent years —, the review to move to BS-IV, which was scheduled in 2006, was delayed and it was implemented only from April 2010, that too in major cities alone. It was only in 2014 that a decision to expand the BS-IV norms across the country by 2017 was taken,” he adds.

Then came the sudden decision to shift nation-wide to BS-VI, barely a year after BS-IV had become fully operational. The refineries had to plan and set up desulphurisation units to meet the required specification of BS-VI, as per which sulphur in fuel was to be reduced to 10 ppm from 50 ppm — a five-fold reduction.

Cost of changeover

Doing this has cost a bomb. The PSU refineries — IndianOil Corporation Ltd, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd — alone have invested over ₹32,000 crore to upgrade their refinery to produce BS-VI grade fuel. The private sector has also spent significant amount and executed similar projects to upgrade the fuel quality to BS-VI level.

The back-end preparations regarding the flush-out of all the system, from the older fuel (BS-IV), in the entire supply chain of refinery tanks, pipelines, marketing depots and retail outlets, was also a mammoth task for the marketing companies. But, if petrol pump owners are to be believed, it was done with ease.

In fact, the transition was so smooth that most consumers and even retailers didn’t notice the change. “ Pata nahi chala kab migration hua ? (We did not get to know when the transition to BS-VI happened). It was very smooth,” says a petrol pump owner.

In a recent interaction that FIPI had with SIAM, it was confirmed by the auto industry representatives that they carried out independent testing at several retail outlets in the month of January and found that they had started supply of the BS-VI fuel, Malhotra says.

Delhi NCR was to have BS-VI fuel supplies by April 2019 and the rest of the country from April 2020, but OMCs switched over to supply of BS-VI grade fuels in Delhi/NCT on April 1, 2018. Supply of BS-VI fuels was further extended to four contiguous districts of Rajasthan and 8 of Uttar Pradesh in the National Capital Region (NCR) on April 1, 2019, together with the city of Agra. BS-VI grade fuels were made available in seven districts of Haryana from October 1, 2019.

Backend changes

According to IndianOil officials, “IndianOil refineries have switched over to production of BS-VI fuels by implementing clean fuel projects at a combined cost of about ₹17,000 crore. The projects completed include installation of new units like diesel hydro-treater, gasoline isomerisation, hydro-desulphurisation and revamp of existing process, offsite and utility facilities at all refineries.”

IndianOil had used in-house developed technologies also while upgrading the refineries. Implementation of BS-VI projects has been completed and all IndianOil refineries have started production of BS-VI fuels. Digboi Refinery was the first to produce 100 per cent BS-VI compliant fuels.

M K Surana, Chairman and Managing Director, HPCL says, “We are ready to roll out BS-VI from April 1, 2020, all over India. HPCL has spent around ₹4000 crore for upgradation of refineries. In cities like Delhi and certain areas in and around NCR, BS-VI is already being sold from our outlets. As per the dilution plan, BS-VI products have reached other cities also.”

Switchover to BS-VI fuel supplies by the marketing and retail network of oil retailers is also in full swing across the country. All bulk storage terminals/depots have already achieved conversion from BS-IV to BS-VI fuels. In the markets catered to by them, testing of nozzle samples at petrol pumps is in progress pan-India to ensure complete switchover.

Retail challenges

“There is a marked increase in evaporation loss whenever the fuel quality is upgraded and made lighter. At the BS-IV grade, around 1 per cent of the total volume procured is lost to evaporation. This is higher than the evaporation loss incurred in earlier grades of fuel. We have made representations to the Centre to address this concern when BS-VI grade fuel becomes the norm from April 1, 2020,” says Ajay Bansal, President, All India Petroleum Dealers Association.

As regards ethanol blending, officials in the Ministry as well as oil companies said it continues. In fact, it will make the fuel even better. On premium or branded fuels being sold by the oil companies, an executive said, “they continue, as premium fuel is more to do with additives.”

BS-VI will be at least 50 paise a litre more expensive than BS-IV grade. The consumer may not feel this pinch given the current global oil prices, which are at new lows, but once the spike happens, the pain will be more evident.

Says K Ravichandran, Senior Vice-President Group Head-Corporate Ratings ICRA Ltd, “Domestic refineries have spent over ₹35,000 crore in making their auto fuels compliant with BS-VI norms.

In order to recover the capex and regular opex, in the form of hydrogen consumption and other overheads, additional levy of ₹1 to ₹1.5/litre will be required as part of retail fuel prices. In the absence of that, the refiners will end up achieving sub optimal returns, which will pressure their overall profit metrics.”

Presently invoicing is done reflecting rates for BS-IV grade fuel in centres where it is not notified, said Bansal adding, “We expect the price to go for a hike when invoicing is done at the BS-VI grade fuel.”

“Oil companies have spent capital cost in upgradation of the refineries and will also incur additional operating costs for producing BS-VI grade fuels. Recovery of the additional cost over a period will be a logical expectation,” sums up Surana.