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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)

  • lucio says:

    You are dealing here with PSU where jobs are guaranteed for life meaning –> “no accountability” on the job –> inefficiency all around –> prices always high.
    Don’t expect transparency in this scenario ‘cos that would mean –> exposing inefficiencies.

  • Mahesh says:

    A very good analysis done by………But i have few queries.
    1. When the crude prices rise from low to high. IOC was demanding hike from Jan-Feb and taking a loss up to May end. Should IOC not be compensated for loss in last five months.
    2. Always remember that…………the day company booked the crude at overseas…..that price should be taken for analysis, not the price of today.
    If you have the answers……..you are welcome.

  • Dhananjay says:

    Mahesh,
    As I understand the crude payments are made in terms of +/- a certain percentage of the market price (either NY or Lon) on the day the crude is lifted. Its not on the day of booking but on the day when actual crude was pumped in the tanker.

  • Balaji says:

    On the last line…”we should be able to drive to the next Shell, Reliance or Essar pump that charges more sensibly)” …well, if so much is there on the table, why isn’t Shell charging “more reasonably” when crude prices are down and walking away with customers (even for the high octane gas they sell, price is higher)….Answer : Because they can. Which is what Private players will always do. It is the reason for their existence.

  • lucio says:

    Why discuss the pence when the pounds are in question ?

  • anu dsff says:

    The same thing is true For March 16 vs. April 1 2013 break up.
    March 16 April1
    (Cost & Freight) Price of Gasoline (Petrol) BS III equivalent 122.69 119.17
    Average Exchange rate 54.40 54.28
    Refinery Transfer Price (RTP) on landed cost basis for 42.97 41.64
    Price Charged to Dealers (excluding Excise Duty and VAT) 45.68 45.65