Petrol Costs

7/30/2019 Petrol Costs

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How is the price of petrol and diesel fixed?


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Parity PriceWhen the price of a product is directly linked to another price

Import parity priceA price charged for a domestically produced good that is set equal to the domesticprice of an equivalent imported good (the world price plus transport cost plus tariff)

Export parity price,The price that a producer gets or can expect to get for its product if exported

trade-parity priceA model for diesel and petrol, which would be a weighted average of the importparity and export parity prices in the ratio of 80:20.

Purchasing power paritythe amount of adjustment needed on the exchange rate between countries in orderfor the exchange to be equivalent to each currency's purchasing power.

The PPP conversion factor shows how much of a country's currency is needed inthat country to buy what $1 would buy in the United States.


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Administered Price Mechanism - APM (1970-2001):

Till 1970 it was import parity price

In 1970, APM was introduced by which govt would insulate the

impact of international crude oil by maintaining an Oil Pool Account

(OPA).

OPA consisted excise duty, customs duty and sales tax included in the

petrol price.

So, using this Oil Pool Account (OPA), the Govt gave money to oil

companies to maintain their under-recoveries (because LPG and

diesel are sold by Govt at subsidized prices)


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Till 1990, OPA was positive and Govt was able to maintain balance

with domestic prices and oil company costs

In 1991, post liberalization, consumption pattern increased and in late

90's OPA became OPD i.e Oil Pool Deficit running into thousands of

crores.

This forced Govt to increase petrol and diesel prices to maintain OPA

and yet running subsidy program for kersoene and LPG


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Import Price Parity (done by NDA Govt in 2001)

In 2001, The NDA Govt dismantled APM and allowed market prices

(international market) to determine domestic prices.

Although this mechanism dismantled Oil Pool Account concept, Govt

did not rationalize taxes imposed on states

The result: Increase in oil prices again.

Import Parity Price began to be used when not petro products but

only crude oil was imported

The Import parity price (is the price at which the seller exports to

another country including cost, insurance and freight expenses)

IPP for crude oil is much less than petro products.


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Trade Parity (2006-till present)

When International prices began to increase, the import parity

pricing mechanism was not helpful to Indian economy

It just began to increase and increase crossing 120$ a barrel.

Then the Govt decided to use trade parity mechanism wherein the

price was fixed as 80:20 ratio i.e 80% import parity and 20% export

parity.

The export parity price could be incorporated because India began to

export certain petro products.

So, by shifting to this mechanism, there was a considerable reduction

in prices.

However, the taxes induced were not changed resulting in the same

situation


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Now, future? Deregulation and rationalization of taxes?

Kirit Parikh Committee recommended in Feb, 2010 to the Govt to

dismantle any interference in pricing mechanism and rationalize taxesacross the country.


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Suggestions of Krit Parkh Committee


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if we allow our market open to international markets. It can be very deadly. Just

see what happens if oil reaches $150 a barrel, petrol will be Rs.76/liter or so.


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11/15

Price paid to refinery @ Trade Parity

35.39

Inland Freight + 0.65

Marketing Cost and Margin + 1.47

Excise Duty (including cess etc.) +14.78

Total price after Excise duty = 52.29

Less: Under-recovery absorbed by OMCs (-) 00.71

Price Charged to Customer - Depot Price = 51.58Dealer Commission + 1.50

Value added Tax (Including VAT on dealer

commission.) *

+ 10.62

Retail Selling Price * * = 63.70

Petrol price as on 01.08.2011 (Rs. per litre)

VAT as per Delhi. It varies from 33 % to 15 % from State to State

** Petrol Price is decontrolled with effect from 26th

June, 2010. Theprice break up is as per IOC.


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Particulars Rs./Litre

Refinery Transfer Price (RTP) for BS-IV Diesel(Price Paid

by the Oil Marketing Companies to Refineries)

38.26

Add : Inland Freight and Delivery Charges 0.71

Add : Marketing Cost of OMCs 0.64

Add : Marketing Margin of OMCs 0.76

Total Desired Price - Before Excise Duty, State VAT and Dealer

Commission

40.37

Less: Under-recovery to Oil Marketing Companies 6.90Price Charged to Dealers (Depot Price)- Excluding Excise

Duty & VAT

33.47

Add : Specific Excise Duty @ Rs.2.06/Litre (Rs.2.00/Litre+ 3%

Education cess)

2.06

Add : Dealer Commission 0.91

Add : VAT (including VAT on Dealer Commission) applicable for

Delhi @ 12.50%, Rebate of Rs.0.38/Litre and Air Ambience

Charges @ Rs.250/KL.

4.46

Retail Selling Price at Delhi 40.91

Buildup of Retail Selling Price of Diesel at Delhi as on 01-Oct-11


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Particulars Rs./Litre

Refinery Transfer Price (RTP) for PDS Kerosene (Price

Paid by the Oil Marketing Companies to Refineries)

37.05




Total Desired Price-Before Excise Duty, VAT and

Wholesale & Retailer Commission

38.44

Less : Subsidy by Central Government 0.82

Less: Under-recovery to Oil Marketing Companies 24.63

Price Charged to Dealers (Depot Price)- Excluding

Excise Duty & VAT

12.99

Add : Excise Duty (Including Education Cess) 0.00Add : Wholesale & Retailer Commission and Other charges

fixed by State Government

1.13

Add : VAT (including VAT on Wholesale & Retailer

Commission) applicable for Delhi

0.71

Retail Selling Price at Delhi 14.83

Buildup of Retail Selling Price of PDS Kerosene at Delhi as on 01-Oct-11


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Particulars Rs./Cylinder of 14.2 KG

Refinery Transfer Price (RTP) for DomesticLPG(Price Paid by the Oil Marketing Companies to

Refineries)

572.71




Add : Bottling Charges (Filling and Cylinder Cost) 38.68Total Desired Price-Before Excise Duty, VAT and

Distributor Commission

666.25

Less : Subsidy by Central Government 22.58

Less: Under-recovery to Oil Marketing Companies 270.24

Price Charged to Distributor (Bottling Plant

Price)- Excluding Excise Duty & VAT

373.43

Add : Excise Duty (Including Education Cess) 0.00Add : Distributor Commission 25.83

Add : VAT(including VAT on Distributor Commission)

applicable for Delhi

0.00

Retail Selling Price 399.26

Retail Selling Price at Delhi (Rounded) 399.00

Buildup of Retail Selling Price of Domestic LPG at Delhi as on 01-Oct-11


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Product Unit Under-recovery

(eff. 01-Oct-11)

Diesel Rs`/Litre 6.90

PDS Kerosene* `Rs/Litre 24.63

Domestic LPG* `Rs/Cylinde 270.00

Product-wise Under-recovery of Public Sector Oil Marketing

Companies (OMCs)

OMCs are currently (effective 01-Oct-11) incurring daily under-recovery of Rs 271

crore on the sale of Diesel, PDS Kerosene and Domestic LPG.

The difference between the cost price and the realized price represents theunder-recoveries

of the OMCs

Documents

Petrol Costs