‘In­dian fuel rates have not vi­o­lated global pat­tern’

Resource Digest - - CONTENT -

If re­tail sale price of petrol and diesel is as high as it was when the global crude price was twice as high, state-run oil mar­ket­ing com­pa­nies haven’t much do about it: Their prof­its haven’t jumped. Of course, these firms haven’t been suf­fer­ing from un­der-re­cov­er­ies since daily pric­ing of petrol and diesel was made ef­fec­tive on June 16 last year. Their re­fin­ing mar­gins are, how­ever, be­ing kept well within the trade-par­ity pric­ing for­mula al­lowed by the gov­ern­ment and mar­ket­ing mar­gins have re­mained more or less the same dur­ing the pe­riod since dereg­u­la­tion. The lat­est spike in re­tail fuel prices is be­cause the global oil prod­uct prices (which in­flu­ence trade par­ity prices for OMCS) have in­creased ow­ing mainly to the hur­ri­cane Irma in the US and states’ VAT too have risen as a re­sult. The freight on board (FOB) prices of petrol an diesel in­creased 20% each in the global mar­ket over the last three months, but do­mes­tic re­tail sell­ing prices of these prod­ucts in­creased by around 8% only, an OMC of­fi­cial said, cit­ing data.

In a re­cent ar­ti­cle in The In­dian Ex­press, noted en­ergy ex­pert Kirit Parikh, who was mem­ber of the erst­while Plan­ning Com­mis­sion, said the in­crease in fuel prices won’t jack up the Cen­tre’s rev­enue as ex­cise on petrol and diesel is spe­cific, in­stead of ad val­orem (it is an­other mat­ter that the ex­cise on diesel in­creased 386% and that on petrol by 126% be­tween Oc­to­ber 2014 and Septem­ber 2017). But since state VAT be­ing ad val­orem, these con­trib­uted to the re­cent in­crease in prices. It may also be noted that the states get 42% of the di­vis­i­ble pool of the cen­tral taxes. “To a large ex­tent, In­dian petroleum prices are de­pen­dent on in­ter­na­tional prod­uct prices. The lo­cal prices are not di­rectly linked with crude prices and pre­dom­i­nantly driven by de­mand and sup­ply,” said the OMC of­fi­cial.

Un­der trade par­ity pric­ing (TPP), do­mes­tic fuel prices are de­ter­mined by adding im­port par­ity price (IPP) — with 80% weight — and ex­port par­ity price (20% weight). The IPP is based on the FOB price of Euro Iv-com­pli­ant diesel and petrol prices in the Arab Gulf mar­ket and in­cludes freight, in­sur­ance, cus­toms duty and fac­tors in ex­change rate vari­a­tion (see ta­ble show­ing how the re­tail petrol price is built up). Data show that TPP, also re­ferred to as re­fin­ery trans­fer price (RTP) or the price at which diesel or petrol is avail­able at re­fin­ery gate, has moved in tan­dem with the bench­mark Arab Gulf mar­ket prices (see chart). Mov­ing av­er­age price of last 15 days is used by the OMCS to ar­rive at RTP. “It is be­ing done in such a way that any spike on a sin­gle day for any rea­son should not im­pact prices sig­nif­i­cantly,” said the of­fi­cial.

For in­stance, dur­ing the re­cent cy­clone in the US, 13% of that coun­try’s re­fin­ery ca­pac­ity shut down. This led to a short­age of petroleum prod­ucts be­cause the US’ coastal re­finer­ies not only feed to the US but also to mar­kets such as the South Amer­ica and other re­gions. One should also keep in mind that the cur­rent hike in fuel prices is also partly due to hike in dealer com­mis­sion which started on Au­gust 1. Though OMCS stag­gered the in­crease in dealer price, it has steadily gone up to an av­er­age of Rs 2.5 per litre of diesel from Rs 1.65, and to an av­er­age of Rs 3.57 per litre of petrol from Rs 2.55. While dealer com­mis­sion was uni­form ear­lier, it is slab-based at present wherein deal­ers with higher vol­ume get lower com­mis­sion. “Dealer com­mis­sion was to a cer­tain ex­tent re­spon­si­ble but we had not im­ple­mented it overnight but stag­gered it so that change in price is not very dras­tic. Now the in­crease in dealer com­mis­sion is built in the prices,” said the OMC of­fi­cial.

Though many Op­po­si­tion-ruled states are up in arms against fuel price in­crease, they have also ben­e­fit­ted from the spike in tax rev­enue on petroleum prod­ucts. “Apart from the cen­tral ex­cise duty, the sale prices of diesel and petrol have in­creased be­cause of the very high VAT rates im­posed by the states. These vary from state to state. Mad­hya Pradesh im­poses a VAT rate of 40% on petrol and 32% on diesel. The low­est rates are in Mi­zo­ram: 20% on petrol and 12% on dieselm,” Parikh wrote. Ac­cord­ing to Petroleum Plan­ning and Anal­y­sis Cell data, VAT is as high as 47% in Ma­ha­rasth­tra on petrol and 31% on diesel in Andhra Pradesh.

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