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| Fuel price hike creating burning holes in our pockets | | | Jamwal Mahadeep Singh
Indian is one of the world's biggest oil consumers. Rising petrol prices is a big reason for worry, it create burning holes in our pockets, as it has a direct effect on the prices of our basic needs. How are fuel prices decided in India? Why does each state (even in same state) have a different price-point? These are the questions that are in much discussion in public domain, when people feel heat of price rise in fuel products. Components of petrol price are; crude fuel component cost, ocean transportation charges, crude product Insurance premium, ocean loss cost, port usage charges, Custom duty, transportation from port to refinery, refinery processing cost, value added tax, dealer commission, excise duty. We have a complex exercise involved in price fixation of the fuel product. Many factors determine the computation of retail selling price (RSP) or the final petrol prices. At the very startup of my write up, let us understand how the prices of fuel are fixed in India. An equation in this exercise starts from 'FOB' (free on board), it is the price at which fuel is purchased from oil producing country. The transportation charges (ocean charges) up to some Indian port paid are added to FOB and resultant cost we call C & F price i.e. cost & freight price. Still fuel lying at Indian port, three type of charges are levied that are; insurance charges i.e. premium paid to an insurance company for the insurance cover it provided to the crude oil, port dues i.e. fees paid in lieu of using the facility of port, and ocean losses i.e. to compensate for the oil lost during transportation. On the imported crude oil, GOI charges customs duty. Here after paying all these charges the escalated cost is called as IPP, i.e. import parity price and is the cost when crude oil is still lying at the Indian port. The crude oil finds its way to a refinery. After a refinery has processed crude oil into petrol/diesel/kerosene etc, a term called RTP, i.e. refinery transfer price comes into the picture. It is the price paid by 'Oil Marketing Companies' to refinery for the purchase of the product. This refined diesel is transported by rail/road to different retail outlets. For this Inland freight is paid. Oil marketing companies spend money on marketing its products. When we add them, we get TDP i.e. 'total desired price'. Ultimately product reach the retail out lets. Here, central government imposes excise duty, state government imposes value added tax and a fixed profit margin per litre of fuel is added. Finally we get retail price of the petroleum product. The quarry that haunts common man is why does each state (even in same state) have a different price-point? I think the quarry might have been resolved; it is because of the reasons that the state collects different taxes and transportation costs that bring change in final retail price of the petroleum product. The government has no direct control over petrol rates except slapping various taxes that are almost equal to 5o% of the actual product cost. The petrol rate components are marked to market dynamics that means petrol prices are determined by crude oil prices in global markets and tax imposed by the government.
The main factors that impact petrol prices have been worked out as; the increment in raw petroleum costs in the worldwide market is one critical figure in increment in petrol prices. Indian oil organizations confront issue to reach the petroleum demand with deficiency of supply and production from refinery centers. Petrol prices shall vary in case there is a misalignment between supply and demand. The price of a particular product tends to increase when it is in deficit supply but has more demand. The addition of vehicular traffic on road tends to increase use of fuel. As a general rule, the higher demand for petrol, the higher shall be petrol prices. The lesser the demand for petrol, the lesser shall be petrol prices. The tax rates in India also contribute to price hike of petroleum products. The tax structure for petrol and petroleum products is governed by the Indian government. Oil companies hike fuel prices to recoup losses when there is a jump in tax rate. When the state government increases the VAT on petrol, petrol rates shall increase. Depreciating rupee is one of the major reasons of the increase in petrol price in India. Applying demand and supply theory, rupee is continuously losing value and oil marketing companies have to pay more for the same amount of oil imports. Clubbing we can say that some of the external factors are regular hike in petrol prices, is corruption, imbalanced Indian economy, fluctuating dollar value, dependency on imports, price of crude oil in the international market, rising population etc. Among these some of the factors are beyond the control of government.
The measures that can be taken to deescalate fuel prices are; 1. At oil marketing companies' level, the ocean loss (during transportation through ocean route) required to be brought at zero level. The fuel processing cost in refineries needs to be brought down by applying latest technologies in this sector. 2. At the government level, more refineries are to be augmented to meet up demand and supply in perfect harmony. it could slash fuel taxes, which account for about half the per-litre, price people pay. The custom duty at crude oil should be revisited with reduction of port dues i.e. fees paid in lieu of using the facility of port. To reduce the taxation en-route to the journey of fuel that set in by purchase of crude oil till reaching retail outlets as final product, by central government as well as by state governments. Much talked, it is required to be bring under 'GST' umbrella with lowest slab at the uniform rate of 5%, taking fuel products as life line as it effects even the last man in the BPL category also. The fuel prices indirectly control the prices of all whatever is required to sustain in life. The fluctuating dollar value of Indian rupee is required to be strengthened, on much talked main reasons, for the steady slump in the value of India's currency and they are: Huge trade deficit (imbalance between import and export), lower capital inflow, devaluation pressure (situation, where more people tend to sell rupees to buy dollars), and low growth and high inflation. Looking for alternative sources of energy such as: electric energy, solar energy, wind energy, hydroelectric energy etc. as solution to dip the requirement/consumption of petroleum products in these fields. This will create less demand hence less price. 3. At our own level, based on the theory 'the lesser the demand for petrol, the lesser shall be petrol prices', we should curb the petrol consumption by using our vehicles efficiently. We can use other means of public transport to go to places instead of using own vehicle. We need to think individually in order to save petrol for our self as well as for the upcoming generation. This way we are contributing in de-escalation of fuel prices in-directly by cutting the consumption of the fuel products.
The Indian production and exploration segment is dominated by public sector companies (PSCs). The prime participants of the industry are Indian Oil Corporation, Bharat Petroleum Corporation, Oil and Natural Gas Commission, Hindustan Petroleum Corporation, Reliance Industries, Patronet LNG, Essar Oil, BP, Gas Authority of India, Bharat Petroleum Corporation, Adani Gas. The private players have come out from the shackles of the government by mutual understanding as government has completely surrendered before oil marketing companies losing its control over oil prices. But these have been used as to paint a false picture Indian economy have. |
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