Fuel upgradation cess may be introduced in the budget to finance Bharat Stage VI

Government’s decision to jump to Bharat Stage VI from BS IV effectively demands cleaner fuel from oil companies. But the constraint is that such an upgradation needs heavy investment by oil companies. The financial burden of implementing BS VI is on the refiners as they have to make nearly one lakh crore investment to make cleaner fuel.

Meeting the cost of fuel upgradation was examined by a government appointed Committee. In May 2015, the Draft Auto Fuel Vision and Policy 2025, prepared by the Committee Chaired by Ms Saumitra Chaudhuri, former member of the Planning Commission has found that refiners need Rs 80000 crore to improve their infrastructure to meet the fuel standard set under Bharat V.

In the past few years, refining companies have made an investment of Rs 30000 crore for enhancing infrastructure to meet BS IV.

To meet the financial requirements, the Fuel Policy Committee recommended the imposition of Special Fuel Upgradation Cess of 75 paise /litter on both diesel and petrol.

But the petroleum ministry has objected to the suggestion and observed that the companies have the money to make the investment needed for upgradation.

Now skipping BS V and embracing BS VI at an earlier date can be met only by finding quick money. The committeee suggested imposition of Special Fuel Upgradation Cess from 2015 to 2021.

But the revised policy tries to implement BS VI by 2020. One year before the committee’s roll out target year of 2021. Hence, the government has to find a way to finance the fuel upgradation investment within the next five years.

Obviously, there is no better option than going for the Special Fuel Upgradation Cess as such a measure will not hurt customers much at a time when crude prices are coming down.

The next budget is a right opportunity to launch the revenue mobilization for fuel upgradation effort. There is every chance that the Finance Minister may go for at least Rs 1 cess on both Petrol and Diesel so that the BS VI roll out becomes feasible by 2020.