1. Electric vehicle push: Are oil companies, exchequer ready FOR a shift to greener fuels & the viability of OMCs?

Electric vehicle push: Are oil companies, exchequer ready FOR a shift to greener fuels & the viability of OMCs?

Union transport minister Nitin Gadkari’s stern message to the auto industry to go electric has caused quite a consternation.

By: | Updated: October 20, 2017 3:58 AM
Electric vehicle, Electric vehicle push, oil companies, greener fuels, viability of OMCs Union transport minister Nitin Gadkari’s stern message to the auto industry to go electric has caused quite a consternation. (Image: Reuters)

By Smera Chawla

Union transport minister Nitin Gadkari’s stern message to the auto industry to go electric has caused quite a consternation. It is not so much of a policy shift that has disturbed the carmakers, but the way the minister chose to go about it. “We should move towards alternative fuel. I am going to do this, whether you like it or not. And I am not going to ask you. I will bulldoze it. For pollution, for imports, my ideas are crystal clear,” Gadkari had sounded this warning at the SIAM meeting. In principle, there is a strong case for India shifting to electric vehicles since the country depends on imports for crude oil to the extent of over 80% of its requirements and the annual import bill of $88-90 billion is a huge drain on the exchequer. We also need green fuel as most of our cities have the dubious distinction of being among the world’s most polluted places to live. So, both on account of health and reducing import dependence, it makes sense to go electric, though there is also a debate whether electricity generation is free from pollution because most of our energy demand is met by coal-fired power plants.

The mandate for the policy has been given to NITI Aayog, and it must examine whether the 2030 deadline is viable not only for the auto industry but also the kind of impact it would have on our navratna exploration and oil marketing companies like ONGC, Indian Oil, HPCL and BPCL. Each of these companies have annual revenue generation of close to $15 billion and play a significant role in supporting the economy. The bigger question is can the Centre and states manage their budgets without drawing significantly, as they do now, on petrol and diesel by way of taxes? On sale of each litre of petrol and diesel, there is more tax than the cost of crude, refinery and margins of OMCs. The Centre alone makes over `2.67 lakh crore from levies on petrol and diesel, according to RTI figures.

Also, what about the humongous investments being made or to be made on explorations by OMCs? On a recent visit to Istanbul, oil minister Dharmendra Pradhan noted “India is the place where there is incremental demand.” India aims to spend $300 billion in investments over 10 years to boost the production of crude oil, and to refine, transport and distribute the fuel. According to Pradhan, the $300 billion investment would be completed by 2027, so how does it match with a ban on petrol and diesel vehicles? Surely, investments of this size would not be capitalised in just about 2-3 years. Surely, there is a mismatch in the roadmap that Gadkari has and the one being talked about by Pradhan. It is up to the NITI Aayog to make sure the electrification policy takes care of a gradual shift to greener fuels and the viability of OMCs, which will have to remodel their businesses.

In India, 99.6% of petrol is consumed by the transport sector. Of this, 34.33% is used by cars. In case of diesel, 70% is consumed by transport sector. Of the total diesel sale, the highest consumption is by cars, UVs and three-wheelers—at 28.48%. On the operational side, the biggest challenge electric vehicles face is lack of infrastructure. With about 3 million cars getting added every year, we would need a large network of battery charging stations, which would evolve into a business model about which nobody currently has an idea. China, the world’s largest auto market has proposed 12,000 new charging stations before 2020 to fulfil the demand of over 5 million plug-in cars. Consumers in India are value-conscious. Currently, the price of lithium-ion batteries is $250/kWh globally, which is about `6 lakh in battery costs, excluding import duties. Such a business model doesn’t cater to the middle class. Battery prices have to come down to $100/kWh for electric vehicles to be viable.

Most companies including Tesla, Ford, GM are making huge investments in new technology. Countries are increasing their electric car market. With 29% market share, Norway has one of the most successful models for deploying electric cars. In 2016, China was the largest electric car market—it had world’s 40% electric cars. Globally, more than 2 million electric cars were sold in 2016, according to International Energy Agency (IEA). India should look at a phased approach for the transition to smarter mobility. A long-term and collective vision of the Centre, states, OMCs, activists and public should be implemented rather than building a strong case on one minister’s statement here and there. The best course should be to come up with a draft national policy and a detailed yet flexible action plan. Yes, deadlines are important, but 2030 for all electric vehicles looks rather ambitious more for the oil economy than automakers.

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