Bio-diesel sales come to a halt on higher GST rate

Government entities, including railways and oil companies, and retail consumers have almost halted procurement of bio-diesel following a sharp spike in price under the goods and services tax (GST) regime.

The development comes at the time when several Indian cities are battling severe pollution and conventional crude oil prices are on an upswing.

Bio-diesel, a green fuel mixed with regular fuel to keep the environment clean, has been included in the 18% bracket under GST, which has made it expensive than normal diesel.

From being Rs 4 cheaper than conventional diesel before the GST came into effect, bio-diesel now costs around Rs 10-12 per litre more.

Bio-diesel manufacturers said this has wiped out over 80% of their sales. Despite writing and giving representations to the government more than 50 times since July, nothing has moved, they said.

Indian Railways, which across 16 zones procures three billion kilolitre of diesel worth Rs 17,000 crore every year, is one of the biggest bulk customers of bio-diesel.

The Railways has been blending 5% bio-diesel with conventional for the past few years.

“ However, now since the procurement price of bio-diesel has increased we have reduced its usage significantly” said a Railway Board source.

Similar is the case with OMCs, which have a target to blend 5% bio-diesel with high speed diesel (HSD), though the actual blending is much less, sources said.

Siddharth Pradhan, senior manager with Mumbai-based Unicon Fibro, a producer, said since the introduction of 6% excise in April and later 18% GST implementation, his company have lost all major clients, including the OMCs. “ The oil companies have kept their procurement on hold,” he said.

At 5% blending target, OMCs will need 400 crore litre of bio-diesel per annum.

The three state-owned OMCs – Indian Oil Corp (IOCL), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) – had in July issued tenders to buy up to 20 million litre of bio-diesel from local manufacturers but have gone slow in recent months, sources said.

“From a level of 0% tax on on bio-diesel (CST/VAT & ED exempted in states such as West Bengal, Chhattisgarh, Uttar Pradesh, Uttarakhand, Rajasthan, Haryana) till March 31, 2017, a 18% GST has been imposed on Biodiesel from July 1, 2017. This has made bio-diesel costlier than diesel across India and major users like Indian Railways, state transport corporations, port authorities, retail customer have stopped using Biodiesel as “No Input Tax Credit” is available for them,” said Sudhakar Desai, CEO, Emami Agrotech Ltd, an edible oil and bio-diesel arm of the Kolkata-based Emami Group.

Emami Agrotech at present has an installed production capacity at Haldia Plant in West Bengal which is about 1,20,000 kl of bio-diesel per annum. However, , the plant is running only 20% capacity as till recently there was not much clarity in government policies towards the industry. Also, it is not mandatory to use bio-diesel in India unlike in foreign countries as a result of which the growth has not spiraled as was expected. The company dispatches 24,000 kl bio-diesel in a year, mainly to the oil marketing companies, Indian Railways, APSRTC, Haldia Dock Complex & other retail customers in chemicals, jute, textile and agriculture sectors.

Sandeep Chaturvedi, president of Bio-diesel Association of India (BDAI) said his association's demand is that the government bring down the GST rate to 5%.

Bio-diesel (B-100), which is made primarily from plant waste, is known to be milder in terms of polluting particulate matters, carbon monoxide, unburnt hydrocarbon, sulphur dioxide in a range from 30% to 100% as compared to conventional diesel. Successive governments have assured of promoting the bio-diesel as a cleaner alternative of fuel and it was therefore till recently kept outside of the ambit of taxation. By replacing 3.95 million tonne diesel by bio-diesel, India would save its scarce $1.47 billion in foreign currency. This can rise with increase in blend ratio from 5% to 20%, manufacturers said.

According to an industry estimate, bio-diesel industry currently employs 16,000 people, which may rise to over 60,000 following the government's recent notification of on retailing of around 2,500 outlets across the country with an investment of about Rs. 6,250 crore.

The first hiccup for the industry came when in April government levied 6% excise duty on the bio-diesel which later became 18% on introduction of GST.

The industry insiders claim that certain bio-diesel firms which have recently mushroomed, are trying to make use of the situation by offering cheaper fuel by importing it from Malysia or Singapore. Since bio-diesel imports are banned in India, these companies do it by de-classification or complete the process in India.

PRICE HURDLE

• Biofuel business in India is expected to touch Rs 50,000 crore by 2022
   
• The industry size is Rs 6,000 cr, mainly due to ethanol procurement
   
• There is proposal to set up 2,500 retail outlets