Faraway depots make Sri Ganganagar ’s petrol costliest

High VAT, freight costs push petrol up to ~105.52/ litre, diesel ~98.32/ litre

With petrol retailing at ~105.52 a litre and diesel at ~98.32 on Tuesday, Sri Ganganagar, a small planned city in Rajasthan near the India-pakistan border, has the most expensive auto fuel in the country.

Petrol has been selling here for over ~100 a litre and diesel for over ~90 per litre since mid-february — well before prices touched similar levels elsewhere in the country.

While Rajasthan has one of the highest state levies on auto fuels, Sri Ganganagar sees even higher prices because of high freight costs as well. In state capital Jaipur, for instance, the price of petrol was ~101.02 a litre and diesel ~94.19 a litre on Tuesday.

Raj Kumar Gaur, an MLA from Sri Ganganagar, has been raising the issue since 2008. “Earlier, there were fuel depots in nearby Hanumangarh (60 km away). But they were shuttered. This led to much higher fuel costs for residents in this region. On an average, consumers in Sri Ganganagar are paying around ~10 a litre more than most of the country,” Gaur told Business Standard.

Shutting depots

Some 15 years ago, the three public sector oil marketing companies (OMCS) — Indianoil, Hindustan Petroleum Corporation, and Bharat Petroleum Corporation — had fuel depots at Hanumangarh, which also serviced the fuel needs of the nearby district of Bikaner. According to Suneet Bagai, president of the Rajasthan Petroleum Dealers Association, the depots were subsequently shut down because of low sales — although the OMCS said they were shut due to safety reasons.

“We have been asking the OMCS to start a ‘paper depot’ and get fuel from the Bhatinda Refinery, which is just 90 km away. But the companies are reluctant due to lower fuel consumption at the retail outlets that are in the border areas of Rajasthan,” said Bagai.

A ‘paper depot’ allows an oil company to park its fuel stock in another company’s depot. The transfer of petrol and diesel among oil companies is not subject to value added tax (VAT). The companies would not incur as much costs since they would not be setting up fuel bunks and physical depots.

Sri Ganganagar is currently sourcing fuel from the Ajmer depot, which is 500 km away.

None of the three public sector oil companies responded to queries about shutting down the depot in Hanumangarh.

Freight costs

Freight charges vary across states and according to Hemant Sirohi, a petrol pump owner and mentor of the Empowering Petroleum Dealer’s Foundation, the approximate freight rate among OMCS is ~2.80 a kilolitre for one kilometre. “This leads to varying costs for petrol and diesel across retail outlets in the same state and sometimes within the same district, depending upon the distance of a retail outlet from the supply location,” said Sirohi.

In large states, the price of petrol and diesel usually varies by up to ~2 per litre, depending on the distance from the refuelling bunks. The OMCS set up their fuel depots closer to centres that have higher consumption, which is cost-effective for them. But this also pushes up retail prices in far-flung areas.

Petrol pump owners in north Rajasthan could go to Punjab and Haryana and source fuel from there, which would save transport costs, but this is not allowed. They can refuel only from depots designated by the OMCS — a system that allows them to have control over the quantity and quality of fuel being sold at outlets that bear their brand names.

Cascading effect of high VAT

The high rate of VAT levied by Rajasthan has been a sore point with petrol pump dealers. The state levies a 36 per cent VAT and a ~1,500 per kilolitre road development cess on petrol, arguably the highest in the country. To top it, the central government levies a ~32.90 a litre excise duty on petrol.

“Every subsequent state government has levied an even higher VAT on fuel. The fuel price difference between Rajasthan and neighbouring states has risen from 50 paisa a litre to ~12 a litre. This eventually led to a fall in fuel consumption in border areas. An estimated 1,200 petrol pumps are on the verge of closure in the border districts because they have less than profitable sales volume levels,” Bagai said.

Diesel sales volume has also been falling in the last four years. Around five years back, when the price difference between Rajasthan and the neighbouring states was around ~ 2 a litre, the state had sales of 5.6 billion litres diesel. Currently, the sale has come down to 3.6 billion litres of diesel,” Bagai added.

Has the slump in demand been caused by the Covid-19 induced slowdown? Not so, said Bagai. “Commercial diesel sales have been falling because of the high difference between prices compared to neighbouring states. Fuel is illegally sourced from Haryana and Punjab and sold in Rajasthan.” he said. Ironically, lockdown restrictions have seen fuel sales in Sri Ganganagar and Hanumangarh rise. “During the first countrywide lockdown last year, the auto fuel sales of Rajasthan went down to 25 per cent of 2019 levels, but in Ganganagar and Hanumangarh, the sales rocketed to 125 per cent from the 2019 levels over the same period. This means that when borders were sealed and smuggling could not take place, there were actual sales from the retail outlets there.”

Local levies

Cost is not the only factor that leads to different petrol and diesel prices at retail outlets. “The price difference in auto fuels across districts of a state can be because of local levies and transport costs. These transport costs are charged by the oil companies while the local levies can be under the jurisdiction of municipal bodies,” said Uday Lodh, president, the Federation of All Maharashtra Petrol Dealers Association. “So, while state-wise levies such as VAT remain the same, the price of auto fuels can vary across a state. This was the case in Mumbai and Navi Mumbai (Vashi) when local levies led to a price difference of ~3 per litre litre between the two adjoining regions,” Lodh added.