Why IndianOil sees no e-vehicles threat
New Delhi 04-Dec-2017
Mr. A K Sharma, Director, Finance, IndianOil
The talk of complete phase out of fossil fuel powered vehicles by 2030 and the possible dominance of the roads by electric vehicles does not seem to have ruffled India's biggest oil refiner, Indian Oil Corporation, which says it will continue to make business-as-usual plans for its future.
“Give me one reason why you will buy electric vehicles,” said IndianOil's Director-Finance, A K Sharma, in a chat with a select group of journalists here recently. He observed that the Indian customer is a “value buyer” and would look carefully at the economics of the purchase, pointing out that even diesel cars were not preferred as they cost more.
Providing a quick, back-of-the-envelope calculation of the economics of electric vehicles, Sharma said that only a few “high-end customers and environment enthusiasts” will buy electric vehicles.
“Where is the market?” Sharma wondered.
Defending the $40-billion, 55-million-tonne mega refinery that is being put up in the Ratnagiri district of Maharashtra jointly by IOC and two other government-owned refiners, HPCL and BPCL, Sharma noted that the demand for petroleum products were going up by 4.5 per cent every year. This, he said, works out to 8-9 million tonnes additional demand every year, or about 50-60 million tonnes before the new refinery comes up — in about six-seven years. “Who will meet the demand?” posed Sharma, adding that if the country's refiners went by what was being said about electric vehicles and did not invest in creating additional refining capacity, the country would face a shortage of petroleum products.
RAILWAYS' PLANS
Nor was Sharma too worried about Railways' plans for phasing out diesel locomotives in five years, (as was mentioned by the Railways Minister Piyush Goyal, last month in his address to the Federation of Indian Chambers of Commerce and Industry). Sharma observed that electrification of the Railways had been going on and any drop in diesel demand due to electrification had been offset by increase in railway traffic.
GST WOES
IOC (like other oil refining companies) is facing a rather unique situation with regard to the new ‘goods and service tax' regime. About 60 per cent of its products, including petrol, diesel, natural gas and aviation fuel, is outside the purview of GST, but the rest is within the ambit of the new taxation system. As a result, IOC is “saddled with dual compliance”, Sharma said.
However, more than the burden of dual compliance, IOC's problem is that it gets no input tax credit on the GST paid on the raw material it uses for those products that are outside the GST regime. It also gets no input tax credit for some capital equipment it buys.
Sharma said the loss of this input tax credit works out to ?2,000 crore for the products and another ?2,200 crore for the capital equipment. IOC has approached both the central and state governments, with a proposal that the company should be allowed to offset the input tax against excise duty and state value-added tax.
9 MT REFINERY
Sharma said that IOC's board has cleared the ?27,000-crore, 9 million tonne refinery to be set up at Nagapattinam.
The existing 500,000-tonne Cauvery Basin Refinery, which belongs to IOC's subsidiary, CPCL, will be scrapped and the new refinery will be put up there. As such, IOC foresees no land acquisition or environmental clearance issues. “The refinery will come up very fast,” Sharma said.
IOC's LNG terminal, coming up at Ennore, north of Chennai, is also on track to be commissioned in December 2018, Sharma said.
