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Economy

Fooling Us With the Petrol Price Breakup

Petrol prices have been cut by Rs. 2, or by about 4%. This is very strange, considering the price of crude is down nearly 20% from the peaks of $ 125 (though the rupee has depreciated around 5%)

Oil companies nowadays give us the “break up” of how the petrol price is arrived at. Unfortunately it turns out that this is only a “show” of transparency. In reality the data is just garbage, just putting in figures to justify something.

Look at the revelations from IOCL (latest at http://iocl.com/Products/PriceBuildup/Price_buildup_of_MS.pdf)

On the left is what was on the site on Friday, before the price changed

 

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(Click for a larger image)

1. Crude prices are the same in both PDFs. What they pay refiners is the same in both PDFs. (Rs. 40.94)

3. The price they charge to dealers was Rs. 44.70 earlier and Rs. 43.02 now. So they’re taking a lesser profit, of their own sweet accord? (/sarcasm)

4. This makes no sense – how come the crude price drop is not reflected in the calculations? Look at the oil ministry calculation:

image

At the exchange rate as of 1-jun-2012 of Rs. 5.92 the oil refiners are paying Rs. 5507.56 per barrel. At the price IOCL has mentioned the price is Rs. 6362.72 per barrel on the same day.

Granted, the IOCL Price is for Petrol, while the petroleum ministry price is for crude, but there is about a 5% margin nowadays, nothing more. In any case, the May 24 price (I don’t have the PDF but here’s a link) was $124.37, translating to Rs. 6,912 per barrel of petrol.

That is a drop of 8.6% on input prices.

5. Then why are we paying the same price to the refiner?

Since the Rs. 73.18 price was decided on May 24, the refiner was being paid Rs. 40.94 per liter, when the “petrol” input price per barrel was Rs. 6363.

On Jun 2, when the petrol input price was 8.6% lesser, they are STILL paying the refiners Rs. 40.94?

6. Obviously all the other calculations will look fine. But the question isn’t what they said, it is what they didn’t say.

If they reduced the price paid to refiners by 8.6%, then the petrol price in Delhi would fall approximately 8%, to Rs. 65.50.

This will still give the oil marketing companies a margin of Rs. 3 per liter of petrol (approximate), so they won’t really make losses. That’s the same amount they were making, according to their own calculations, when they raised prices by Rs. 7.5 a liter.

While they cut prices by Rs. 2 per liter, I would expect an even bigger cut on the next meeting on Jun 16. There is definitely enough buffer in the current price to allow it.

(Note: Why do we need to demand it? We should simply pass it in law that the government CANNOT subsidize fuel under any circumstances, and thus allow the private players to come in and compete with the government owned companies, making it impossible for them to keep prices unreasonably high. It should not be a demand from our side – if they make prices too high, we should be able to drive to the next Shell, Reliance or Essar pump that charges more sensibly)

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