Will rise in cost of biodiesel lead to under-recoveries for oil marketers?

A 6% excise duty will increase biodiesel prices by Rs9/litre and oil marketers may have to bear the cost, says Biodiesel Association president Sandeep Chaturvedi


Biodiesel (B-100) is blended at 5% in diesel and sold as B-5. Photo: Bloomberg
Biodiesel (B-100) is blended at 5% in diesel and sold as B-5. Photo: Bloomberg

Mumbai: A new excise levy and state taxes, which have driven up the cost of biodiesel, are reviving the spectre of under-recoveries for oil marketing companies (OMCs) which are mandated to blend it with regular diesel.

Under-recoveries refer to the sale of fuel products below cost by oil marketing firms which are later partly made good by the government.

In July, Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) had issued tenders to buy up to 20 million litres of biodiesel from local manufacturers.

Sandeep Chaturvedi, president of the Biodiesel Association of India, which represents biodiesel manufacturers, said there was no conclusion at last week’s meeting with OMCs. “Biodiesel had no excise duty for the past 10 years, but now a 6% duty has been imposed. Added to this are the taxes and import duty on raw material. This will push the price of biodiesel up by Rs9 a litre. OMCs may have to bear the cost. This will be a burden on them,” he added.

“The tenders have not been closed. The target to roll out the blending was to be achieved by 1 April. However, we are hopeful we will be able to achieve it by 1 May at least,” added Chaturvedi. 

Biodiesel is produced from feedstock such as vegetable oils, animal fat or algae. It can be blended with diesel for use in diesel engine vehicles. 

In an emailed reply, IOCL said, “The impact of excise duty is that the difference in price between diesel and biodiesel increases, thereby making the supplier and the buyer go ahead with such under-recovery. Thus, the national programme becomes unviable for either of the parties. In case excise duty is exempted, there can be more chances of vendors to market biodiesel (B-100) in India.”

Biodiesel (B-100) is blended at 5% in diesel and sold as B-5. “There is no price difference between diesel and B-5 for marketing by the oil companies. However, there is always a price variation of Rs(+)8 per litre  for purchase of biodiesel than diesel,” IOCL added.

The prices of diesel are based on crude oil rates and the rates of biodiesel are based on Malaysian Palm Oil Board Palm Stearin prices.

“While current price of diesel in Mumbai market is Rs62.57 a litre, the cost of Biodiesel (post blending) would be around Rs52 a litre. But thanks to the excise duty and the taxes, biodiesel may become more expensive than diesel. This defeats the purpose of introducing biodiesel,” said Chaturvedi.

BPCL and HPCL did not reply to emails sent Monday. 

Biodiesel use limits pollution and helps cut oil imports. India imports 80% of its crude oil to meet its needs. The National Policy on Biofuels had proposed a 20% blending ratio for both biodiesel and ethanol (blended with petrol) by 2017. 

The oil marketing companies are looking for 5% availability for blending in diesel across all locations. At this proportion, OMCs will need 400 crore litres of biodiesel per annum. 

IOCL said, due to restricted availability, presently the blending is undertaken at 10 locations in West Bengal, Odisha, Andhra Pradesh, Telangana, Tamil Nadu and Gujarat.

The country is targeting a more than seven-fold expansion in its biofuels market over the next six years, oil minister Dharmendra Pradhan said last August. 

Blending 5% of biodiesel with regular diesel and 10% ethanol with petrol could boost the market to Rs50,000 crore by 2022, from about Rs6,500 crore currently, Pradhan said, adding that to expand its biofuels market in six years, India would need 6.75 billion litres of biodiesel and 4.5 billion litres of ethanol.

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