Fed up with the Centre's “indecision” on allowing an increase in fuel prices in the face of the rising international crude prices, the oil marketing companies on Tuesday virtually threatened to increase petrol prices by Rs. 8.04 a litre, asking the government to either cut excise duty on petrol and give them Rs. 49 crore a day in compensation.
In a joint representation, the oil marketing companies asked the government to bring petrol back under the regulated regime.
Petrol prices were deregulated in June 2010. With a 20 per cent value-added tax, the price of petrol, if an increase is effected, will go up by Rs. 9.60 in New Delhi.
“We have been very patient, not raising prices since December despite our cost of production spiralling. But there is a limit to which we can borrow money and produce fuel for the country,” Indian Oil Corporation (IOC) Chairman R. S. Butola said here. IOC issued a formal statement, pointing to the anomalies in the subsidy mechanism and highlighting related issues.
IOC, Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited are losing Rs. 49 crore a day on petrol sales alone. They are losing another Rs. 573 crore a day on the sale below cost of diesel, domestic LPG and kerosene.
Mr. Butola said the oil marketing companies lost Rs. 745 crore in the first 15 days of April in revenue from petrol sale. “We have suggested that the government temporarily end deregulation and give subsidy to make up for the difference between the cost of production and the sale price. Alternatively, the government can cut the excise duty of Rs. 14.78 it collects when a consumer buys one litre of petrol.”
The States levied VAT or sales tax, ranging from 15 to 33 per cent (Rs. 10.30- Rs. 18.74 a litre), and this too could be cut to avoid a price increase. “If our suggestions are not accepted, we will have no option but to increase the price of petrol by Rs. 8.04 a litre (excluding the State levies) with immediate effect,” the IOC statement said. The last revision of petrol price was effected on December 1, 2011. Then, IOC cut the price by Rs. 0.65 a litre on top of an earlier reduction of Rs.1.85 on November 16 that year.
“The international petrol prices have since gone up progressively and stand at $132.45 a barrel in the current pricing period. This is much higher than the price of $109.03 a barrel at which IOC and other oil marketing companies are selling petrol,” the statement said. The company's inability to effect the hike between December 16, 2011 and March 31, 2012 resulted in Rs.1,036 crores of under-recoveries for IOC alone, and Rs. 2,287 crore for all companies.
The statement said IOC and other companies approached the government several times for revising petrol prices, suggesting that motor spirit be brought within the ambit of controlled products temporarily, or statutory levies on it lowered to the extent of loss being suffered by the companies owing to their inability to pass on the increase in prices to consumers.
“The current situation is not sustainable and therefore cannot continue. The continuation of such [a] pricing [formula] will only impede the ability of the company to import crude oil and may affect the supply-demand balance. The company is awaiting the government's response to its requests; should no relief come, it will have no option but to effect the aforesaid increase in motor spirit prices,” the statement said.
Keywords: Petrol price hike, OMCs, excise duty cut, government compensation
That is the way the subsidy works.The price of pterol is set at N70 a litre. When the import price is N100 the government pays N30 as a subsidy.Now this subsidy costs a lot of money so when the price of pterol falls below the list price the government gets to keep the difference. Which in this case is about N2 - N3There is a website that tells you what the actual price per litre is, but I don't know it off the top of my head.I think it is fair because the government ate the cost when oil flew up to $150 so it should recoup some benefit when oil is now at $50.
@ Santosh Kumar
India needs to change this.The under-recoveries is also invented by the MNCs.Hence a REGULATOR is necessary.The year 2004 is very important:-
1.M M Singh became PM of India,2004
2.Shell a Rothschilds Co[along with Total of France] got 100% FDI in LMG marketing in Hazira;2004!
3.The OMCs started reporting/CLAIMING LOSSES under "under-recoveries".[2004!!!]
4.Vikram Singh Mehta of Shell India was the Advisor to the Ministry petroleum and NG for 4 years!!!
It is reported that the so-called "under-recoveries" will help "THE MNC" and the private players to make huge profits.THUS,there is more to this than meets the eye.CAG shoukld Audit the OMCs and the oil Cos.The PSU,oil producers and refiners need to be merged.
The crude oil price today is $102.17 per barrel and probably even cheaper for India because we buy a very low quality mix. Who are these companies trying to fool? There is no justification for raising prices now except for padding these OMC corporates' pockets. Here in America, petrol prices at the pump have DROPPED by more than 10% in the last month and these companies want a 10%+ hike?
@Suman,
MNCs like GM,Ford etc have set up shops here.The Indira congress party
is mainly concerned about them and other MNcs ONLY,and NOT Common
Indians!The recent rate reduction,by the RBI, is to favour the Auto
Manufacturers,which include many MNCs,Tata etc....
The pricing of Petrol is not based on Manufacturing cost but on International benchmarked prices. for India it will be average of daily Ex Singapore Gasoline Prices adjusted back on basis of India - Singapore freight rates for a certain period. Indian refiners take a fortnightly. this is standard international practice for all refiners.
Based on lot of factors, this varies everyday.
Due to the artificial and non opague pricing mechanism of various products,we are in this mess.
the best solution (though very patriotic) is alternate fuels,robust public transport or more domestic crude oil production.
But Butola ji why you are not listening to my suggestion that each oil and gas sector print out including bills should contain a one liner about how under recovered products can be saved , conserved and replaced as the same will help oil and gas sector. Does none of your near and dear reads these comments?
OMCs talking only about price hike for Petrol, why the govt. is still not looking at luxurious diesel cars, SUVs getting cheap diesel? All govt employees, politicians & their families have diesel vehicles, only the common man having a 2/4 wheeler petrol vehicle have to pay more? it does not make any sense. All car manufacturers are investing heavily on diesel engine manufacturing and we all end up with a big balloon of fiscal deficit due to diesel subsidy.
From the cost break-up given in the news article above, more than 50% of the cost of a liter of petrol goes to Govt.(Rs14.78 as excise duty and Rs18.74 as State Tax). These have to be reduced and petrol also has to be subsidized, just like diesel.
Why can`t govt reduce the taxes ? But it will not as they want more funds to play around for vote catching schemes and thro` which the political parties encourage corruption to fuel their party machinaries . On otherhand , it gives incentives and facilities to corporates when ever there is a hint of a global economic crisis and this amount is four times more than what it spends on social benefit schemes intended for the common man . Until the moral fabric of the nation remains untorn , this loot by collecting taxes will not stop and the common man has to think twice before a meal , education , health and movement . Very similar to USA treating its native Americans .Do we , the independent country , need to resort to non-cooperation movement which we did against the British rule ?
@Nivhin,' This is a BIGGER Conspiracy to enable the MNCs work in India
without REGULATION in ANY FIELD....MM Singh is deeply involved in
this.There should be REGULATION in all areas.Honesty is also
needed,which the OMCs lack.
Last year there was an article in The Hindu explaining the concept of 'under recoveries' by OMC, and if I am not mistaken under recoveries are NOT losses. It's just that OMCs benchmark the prices with respect to Singapore index (God knows why!) and any movement in the benchmark is termed as under recoveries by Indian OMCs. I think the pricing structure lacks logic and transparency. And GOI is sitting on the fence as these are cash cows enabling fund mismanagement and loot.
First of all as commented by one person that diesel prices should be deregulated - not possible and not in interest of common man. Once diesel prices deregulated means, all trucks will bear burden. Whole vegetables and other stuff like dairy milk are transported through this medium and thus prices which are already on sky will have huge jump and common man will suffer a lot. Secondly, government is not interested in promoting green fuel at all as CNG rates have been more than doubled in last 1.5 years. This shows they won't be promoting solar or hydrogen fuel either. Major issue is indirect taxation which must be controlled to bring fuel prices down.
The situation is really bleak. The primary reason for this mess is consumerism and materialism, which are promoted 24/7. Wonder what have we gained from all of this. In fact, we have lost it all. We earn in lacs and are still not able to save or are not doing anything for the less fortunate. We leave our 2-3 bhk, enter our cars, turn on AC and music, drive to office, get on with wage-slavery, somehow get through the day cursing our work/boss, leave office, enter our cars, drive back home. This is the case with most people these days, esp. so called middle or upper middle class. I know its easier said than done but the solution lies in simplicity. Try to live a minimalistic life for a month and see how satisfied you will be. Its not tough, in fact its easy to maintain. Think abt how much waste we create when we buy a new cell phone when our old one serves our needs perfectly fine? Mother earth has become our junkyard. We better get ready to live in the junkyard or else change our ways.
Petrol cross subsidising Diesel, LPG and Kerosene has been an historically incorrect decision and cant be rectified in one go. What the government should definetely do is to reduce central excise and cap state level taxes to absolute quantums so that the common man is not impacted. This will also force the government - both state and centre to stop thinking in terms of subsidies. In any case, with the surge in sales of diesel cars (which have 3-6 months waiting periods on most manufacturers), wont be long before the government is forced to think on these lines.
There was a suggestion put hold by the GOA's governmnet to exempt the VAT put on the petrol and thereby reducing the the prices of the pertol by Rs.10 to Rs.15. Why cant we implement this? Why is the Commonman in india has to bow eveytime on the Government's demands? We can hope Pranab Mukherjee can intervene on this by reducing the VAT and helping the OIL companies
If Govt increases price like this then people would go by walk or bycycle soon like past 20 years lifestyle... Already all product prices have had gone up... If this situation continues the ordinary man will affect a lot.....
@shyam - Absolutely right. The two wheeler user is the one most hard hit by high petrol prices, paying taxes that are really unfair, based on percentage of cost instead of flat levy, while the rich diesel SUV driving powerful people continue to enjoy fuel at a subsidized price! A classic case of the poor paying for the rich to enjoy their expensive possessions. It is high time the government(s) came out of their slumber, threw out the subsidy on diesel and kerosene and cut the taxes on petrol. Petrol is now the common man's fuel. How insulated and cut off from reality do our decision and policy makers have to be to not see this?
I wonder if anyone knows the breakup of the petrol price in india ? (especially Bangalore). The Oil companies use many jargons like sales tax/VAT, excise duty, environment charge etc. If the oil companies are making loss in crores as said, the share prices of OMCs are not dropping down anytime. How can the stock go up for a company when its incurring huge losses ?
I don't think that any reduce or permanent stoppage in the production of vehicles will be a suitable solution to the current crisis. The only thing which seems feasible is the hike in the motor spirit. And the other way is to give proper subsidy. But as India is a country of corrupt politicians it would be difficult to implement as most of the money is gulped by them.
If the crisis goes on, it may lead to other crisis' along with this graving situation.
at least state govt should cut the sales/vat taxes.
We have funds to provide research on many facilities including BT crops and finding out the next crude oil reserve on our lands and political barrier. Has there been a thought to invest in alternative fuel research (viz. stable Hydrogen fuel tanks, pipes to transfer the fuel to the engine and a safe, stable, and efficient combustion engine)? This would stabilise vegetable prices and other itineraries that rely on fueled transportation in the future, keeping in mind the safety standards and eying Carbon Credits that first world countries are levying on developing countries.
This is a big challenge to the government,to decrease the taxes and subsidy or to fix the petrol price at Rs.100/- a litre based on market rates. The real concern of general public is that most of the tax money is going down the drain and hardly leaving any money for welfare and development.
I have no doubt that petrol prices shall soon hit ton's mark; atleast in
Bangalore. This price revision shall affect the common man on his 100cc
fuel efficient Splendor more than those VVIP politicians in Fortuners
and Audi SUVs, all the while when VVIP convoys are enjoying free fuel to
roam anywhere answerable to none. Who pays for their expenditures? Again
the common man on his Splendor. This Govt needs reform badly.
Why dont government reduce or stop production of vehicles in India? Govt/Banks provide loans to buy vehicles and inturn raise the fuel prices and taxes added for this fuel.
Its time that the govt listened to oil companies and try to come to an
agreement/solution which would save both the consumer and the bleeding
companies. Indecision or political reasons for not altering the oil
prices indirectly causes problems and hence dissent among the people.
Petrol and deisel prices will increase, this seems to be certain in the coming days. There is a huge difference in the sellinng prices of petrolium products in India when compare to other countries. The central and the state governments should normalise the taxes on these essential products.. especially some of the states like Andhra pradesh had been levying heavy taxes since long time on these products. The need of the hour for the central andd state governments is to normalise the taxes on petrolium products.
Till date I have not fully understood how pricing of Oil and Gases takes place in India. with certain reports suggesting that the cost of Petrol is only 18-20 Rs. and rest are taxes. It would be highly appreciated if you could run an article on fuel pricing. myths are required to be cleared as it would serve one and all. I hope the same would also spark reactions when it is evident that fuel prices are about to rise.
Based on the latest information from IOCL and BPCL sites as the case[s] may be:-i.A barrel of Crude contains about 169.2 Litres.ii. A barrel of Crude gives the following when refined,in Litres .LPG 7.4, Petrol 72.7, Fuel oils 14.4, Diesel 34.9,Jet Fuel 13.2, Others[Bitumen,.Sulphur etc] 27.6 ]THE RESIDUE, 27.6 Litres mentioned in "others", and the revenue due to it is IGNORED to increase the margin of safety in the calculations].
The revenue due to these is Rs 8059. Crude price contributes to 90 to 95% of the Total Manufacturing Cost in refining.Taking the lower figure.for high margin of safety in calculation,the TMC = Rs 6861,based on the price of a barrel of Crude as per IOC,latest,Rs .6175/= Even after IGNORING the 27.5 Litres residue which corresponds to about 16% of the Crude,the profit per barrel of crude refined is Rs 1198/= CAG,which has the expertise, should Audit the OMCs and Oil Cos.Petrol is blended with 47 Crore Litres Ethanol[Rs30/Litre] annually.Profit Rs 1410 Crores.
Every individual has the responsibility in playing a role in this price increase in Petroleum products. Should look for public transport rather than driving Car with AC on to office.
Petrol prices are increased, burden falls on common man. OMC gets subsidy. From where? Tax from the common man. So all in all, the Govt takes it from us and gives it to them. What will happen if there's no tax? consumption will increase and OMC
will be happy... But long term since we are dependent on oil imports, this is a deep root problem. So what's the solution?
You are talking as if the Centre's indecision is a new one. This is their trick learnt long long ago
Finally it has come out that even though Unregulated, Govt. has the final say in petrol prices.
It will not be a wise step as increasing the prices of least under recovered petro product will force its users to shift to diesel, lpg or kerosene which are more under recovered. Petrol is only 10% of petro products use so it cannot make any noticeable dent on overall under recoveries. Easiest solution to the crisis is to remove subsidies on lpg and kerosene today as solar is their free infinite substitute and induction is cheaper to subsidized LPG. Reduce taxes on petrol. Decontrol all prices. Public should shift to cheaper alternatives of costly imported petro products and should use every drop of later as efficiently as possible. Solution of petro products underrecovery and overpricing problems with win win situation for all of us are is too easy. Only patriotism and will to understand facts needed.
Why is government punishing petrol users? Thousands of crores of rupees go for subsidizing diesel which is a huge burden on tax payers. Its time to end diesel subsidies and let diesel users buy at fair market value. No other country is encouraging irresponsible use of diesel this way. Why waste tax payer money on subsidizing Gensets, luxury diesel cars and MUVs, private commecial vehicles etc?
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