Prime Minister Imran Khan has asked ministries to prepare a policy towards the introduction and development of electric vehicles in the country. This is a wise and timely step.
In the context of evolving inflationary tendencies and increasing petroleum prices, Prime Minister Imran Khan has been looking for a way out for reducing the difficulties of the poor created due to high petrol prices.
Some proposals in this respect have been put forward by the experts including this writer. Some quarters in the petroleum industry have expressed their reservations or even opposition to these proposals. In fact more seems to have appeared on the opposition to the proposal than the proposal itself. It appears that there are some confusions and lack of understanding of the proposal that has been made. We would like to explain the proposal and try to assuage the concern or reservation of the opposing quarters.
The proposal is in the public domain and has some variants. We will describe here the more widely known version. The proposal is as follows: a separate petrol category is created, technically and in financial terms, which can be supported or subsidized through reduced taxation and lower cost of production. It has been found that a successful product can be produced by blending low-octane petrol. At present, regular gasoline is marketed as a RON-92 product. The proposal is to market a RON-87/82 product aimed at motorcycles. There are two rationales for this: a) motorcycles do not require high octane fuel that is consumed by cars, especially, the newer models introduced within the last 5 to 10 years; and b) motorcycle users belong to the low earning level group which may not be classified as poor under the prevailing statistical classification.
It would be easier and cheaper to market such a fuel product. Our existing refineries produce RON-87 Gasoline as a standard product. They add environmentally injurious additives like Manganese compounds to enhance the octane rating to 92 or higher, which costs more money and consumes vitally needed foreign exchange. All we are saying is to not add this injurious additive; the latter may be necessary for cars but is not required for motorcycles. Nothing extra has to be done. In fact, an environmentally more benign product will be there. What is so wrong about that?
It has been estimated that the market share of petrol consumption of motorcycles is around 50 percent. Pakistan is the fifth largest market of motorcycles after China, India, Indonesia and Vietnam. There are more than 20 million motorcycles and some 2.5 million are added every year – a huge market and political product. A Rs10-20 per litre, a cheaper petrol product can be targeted for motorcycles. Additives cost of Rs5 per litre or more can be done away with; also lesser taxation in the form of no petroleum levy and possibly reduced GST. The deemed duty of 7.5 percent can be shifted from diesel to conventional gasoline of RON-92 and upwards. This shifting of deemed duty would create a balance that is heavily tilted against diesel which is consumed by goods transport and public transport used by the poor.
Opponents argue that some motorcyclists may not like the low-octane fuel, as it would not provide the kick and the cranking. Our answer is that they will not be forced to buy the cheaper and low-octane product. They can have their cranking and the kick by continuing to buy the more expensive petrol. That is not the minority user class that is being aimed at. We are aiming at those who are finding it difficult to meet both ends and would thus welcome cheaper petrol and a motorcycle that can meet their daily needs.
The other objection is that it would be difficult to create storage and filling facilities. Our answer is that if facilities have been created for higher octane product, the same way facilities can be created for low-octane products. It is really a lame argument. I recall reading a book on the history of automobiles. When the idea of a car was introduced, sceptics said that it would require an impossible infrastructure; roads would have to be built and petrol pumps would have to be constructed. An impossible idea – was it that? Why should petroleum companies take this pain of coming up with a new product? They are already making money. It is the government which has social concerns. And the government can indeed induce them to do it, by offering a few paisa per litre of service charge or reducing the deemed duty; the latter they may not like. However, companies should also be sensitive about social concerns. If social tensions increase and a law and order situation develops, the first victim is the petrol pump.
So not only is cheaper petrol for motorcycles feasible, it will also help improve the environment and reduce manganese pollution by half, since the proposed product does not require manganese. The petroleum industry does not seem to be much bothered by the environment as we see the utilization of deemed duty. RON level has been enhanced by adding injurious additives and not by improving refineries technology for which the deemed duty has been awarded.
Let us utilize this opportunity by drawing the attention of the government and the other stakeholders towards another aspect of environmental insensitivity. Bio-fuels like E5 are an environmentally benign petrol product being blended almost elsewhere except in Pakistan. In fact, the whole world is moving towards E-10, a more advanced target. E-5 means that five percent ethanol is blended in petrol and E-10 means 10 percent blending of ethanol. Pakistan is a major producer of ethanol due to the sugar industry of which ethanol is a by-product. But Ethanol is exported with no net advantage as the equivalent amount of oil is imported. India is a much larger producer of ethanol due to its larger sugar industry. However, India does not export ethanol. India imports ethanol and blends both imported and locally produced ethanol in petrol, producing E-5 Petrol and is targeting to move towards E-10.
Although prices keep varying, ethanol is typically 25 percent cheaper in terms of international prices. In fact, E-5 and E-10 can reduce the cost of petrol and enhance octane rating resulting in a much more environmentally benign product. There are all kinds of excuses of one kind or the other being made against the present proposal of RON-87 petrol for motorcycles. Why should Pakistan not have E-5? Old vehicles, motorcycles and other issues are almost the same here as they are in India and other developing countries. If one is getting higher prices on inferior products, why would one bother?
These proposals address inflation, poverty and environment at the same time. All policy proposals have pros and cons. This writer does not subscribe to conspiracy theories and oil mafia perceptions. There are bound to be some affectees and consequences; one has to measure the severity of negative consequences and the possible remediation thereof. The petroleum division is supposed to put its foot down, as it has done recently in other cases. It is good to learn that the petroleum division is reportedly examining these proposals with open mind, and that it will organize wider stakeholder consultation and will most probably not give in to the position of one group or the other.
The writer is a former member of the Energy Planning Commission and author of ‘Pakistan’s Energy
Issues: Success and Challenges’.
Electric vehicles (EVs) are getting increasingly popular by the day. Clean air requirements and GHG mandates have made EVs a reality. EVs have a high purchase cost, but are energy efficient. Due to cheaper electricity than petrol and diesel and higher efficiency, the operating costs of EVs are much less. Thus, the life cycle cost of EVs is lower than conventional fuel vehicles. However, the upfront costs are still high, and thus the need of a policy. In Pakistan, the capacity trap is another good reason to introduce EVs to improve capacity utilization. Night charging of EVs may particularly be useful in this respect.
EVs have a fuel-cost advantage over conventional vehicles by a factor of 2, depending upon the comparative prices of petrol vs electricity. However, the high upfront cost, is a major impediment in EV sales, especially in poor developing countries. It is being projected that by 2025 or slightly later, the price difference will go away. There are varying driving factors in individual countries. In Northern Europe, where there is heavy fuel taxation, EVs may be more attractive than in the US where fuel costs are probably the lowest among advanced countries.
Global market share of EVs stood at 4.6 percent in 2018. By 2025, the market share may go as high as 12.5-25 percent. In China, EV market share of 50 percent is expected by the year 2025 and in Norway, it is already 50 percent. The market share of EV buses in China is already 90 percent. The largest electric bus manufacturer in the world is BYD of China (The CPEC framework could be utilized for launching the system under which technical and financial assistance could be obtained). In Europe, there is a target of 100 percent urban electric buses by 2030 and a market share of EV buses of 75 percent by that year. EVs may become the market leader between 2025 and 2030 in the developed world.
India plans to have a 30 percent market share of EVs by 2030.This year, India has announced a $1.4 billion subsidy programme for EVs. The programme is, however, focused on two and three-wheelers and buses and only marginally on cars. After China, India has made great plans for introducing electric buses; the main driving factor being urban pollution. Several EV production plants have already been built. Of special interest to us may be the Maruti-Suzuki and Mahindra-Mahindra initiative activity in EV production in India. Another important company is the BYD (Chinese) joint venture with a local Indian company manufacturing electric buses.
In India, Mahindra has launched its e2O electric car at a price of PKR1.0 million and an e-Rickshaw at a price of PKR2-3 lakhs (for 3 and 5 seaters respectively). Maruti-Suzuki is to launch its new electrical version of the Wagon-R by the year 2020 at a price of $10,000 with subsidy and 30 percent higher without subsidy. The petrol version today is priced at $7000. Suzuki has a strong presence in Pakistan, and its Indian experience may be replicated here conveniently.
In Pakistan, to contain pollution, EV buses may be an ideal solution for metros and the satellite feeding buses that are required for connecting the metro with different areas. The annual bus demand is of 800 vehicles, catered to by three assemblers. It is unlikely that local production would be justified at this volume. On the other hand, one can foresee some activity towards conversion of existing conventional buses into electric buses. There are 250,000 buses and an equal number of trucks (250,000) operating which may create a much larger demand of conversion. Conversion of diesel buses into electrical bus has become a mainstream activity. Earlier, it was a DIY activity or on a smaller scale. Now big companies have come into this sector and are offering conversion kits. All it requires is to replace the existing diesel engine by an electric motor and fit the battery under chassis. In Pakistan, there is great potential to introduce the conversion business. The EV policy should consider conversion aspects as well.
There are three major companies in cars (Suzuki, Toyota and Honda) and three (Hino, Isuzu, Master) in the buses and trucks market, which may have a major stake and influence on the EV policy. Toyota and Honda do not have a clear vision or market plan yet for the EV sector, even globally or in the region. They have an interest in hybrids which are not really EVs in the real sense. They do have one or two symbolic EV models but have not developed a full range of products. Their limited current offerings in EV do not match with their main products, here in Pakistan and elsewhere. As mentioned earlier, Suzuki has one EV product that has chances of good market share in the absence of Toyota and Corolla in the EV market.
Many small local investors backed by Chinese principals are interested in local assembly of EV cars and have reportedly submitted their proposals in this respect. Reportedly, not much interest has been indicated in electric buses, perhaps due to the smaller market size. Whether it is EV or a conventional car, it is still largely conventional technology and the processes of painting, welding and metal work. Only 30 percent of the cost may be EV specific. There has been a yearning in the country to produce rather than assemble cars. A number of attempts have failed earlier in this respect, and it requires deep pockets, technology and market power.
There are three policy choices; one, to allow free import of EVs at none or reduced custom duties which can flood the market at the expense of the existing local car industry. The second is to promote local manufacturing under custom duty concessions; this will introduce a small and separate EV industry away from the mainstream automotive industry. The risk is that the market may be fragmented by the induction of smaller uncertified and established companies, something that should be avoided.
The third is to induce the existing automotive industry under a deletion programme; to introduce EV; the existing players may be able to introduce limited models not catering to the market spectrum. They may require a longer time framework. New players, such as from China, may be introduced under this. The government may be able to attract big Chinese companies under its SEZ programme of CPEC via this approach. There is another potential market of motorcycles which can also go electric. The motorcycles market is of a respectable size.
The establishment of electrical charging infrastructure is a major policy question. Public transport should receive priority. Conversion of buses (five years or less old) to EV should receive attention. Pick-ups and 4x4s may have better chances to succeed. EVs offer a good opportunity to bring in more and genuine competition in the automotive sector. All this requires an EV policy which should pull together the various strands of the issue through stakeholder consultations. Oil is already gone from the power sector; if it also goes away or is significantly reduced from transport sector, one may have to reconsider or dilute the heavy investments programme in the oil sector that is being considered by the government.
The writer is a former member of the Energy Planning Commission and author of ‘Pakistan’s Energy Issues: Success and Challenges’.
Published in The News, May 29, 2019.
