DYNAMIC FUEL PRICING

Come May 1, and public sector oil companies will resort to dynamic fuel pricing at their fuel retail outlets, where prices of diesel and petrol will change daily in accordance with changes in global crude oil prices. There are 58,000 petrol pumps in the country, 95 per cent of which are owned by public sector companies such as Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation and the remainder by Reliance Industries and Essar Oil. The daily dynamic pricing, which will replace the fixing of fuel prices every fortnight (on the 1st and 16th of every month), will be taken up on an experimental basis in five cities—Jamshedpur, Chandigarh, Vizag, Puducherry and Udaipur.

Fuel pricing is a sensitive issue, and no government would want to risk transmitting higher global prices to the retail market. Why then has the BJP government decided to experiment with dynamic pricing? Well, the US Energy Information Administration has forecast Brent crude prices to average $54 per barrel in 2017, and barring geopolitical tensions, oil should hover between $50 and $60 a barrel in the next year. So consumers are unlikely to feel the heat of high fuel prices anytime soon, even if transmitted on a daily basis.

The move is also the next logical step after the deregulation of petrol and diesel prices (in 2010 and 2014). However, the success of the new model will hinge on how “clearly prices are communicated to customers. Tools like SMSes will be key,” says Ravichandran, senior V-P at ratings firm Icra. Not too many are happy. “Daily price change will be a gamble, it will create chaos at pumps. We will be prone to losses too,” says Ashok Bhardwaj of the Federation of All India Petroleum Traders. Expect some confusion in the initial days.