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Old 27th September 2011, 16:13   #16
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Default Re: Petroleum Pricing in India ? Debate

^ Correct, and ultimately profit made by them will lead to generation of employment as well as filling the money trunk of the Govt (via taxation).

1. 90% of Crude oil has to be imported. That means we have to pay foreign currency to buy this. Usually dollars. (which we means this keeps the pressure on rupee-dollar conversion rate)
2. There is a customs duty on this which goes into Govt's treasure.
3. There are some manufacturing and supply & distribution costs for bringing the finished products to us - but that is not more than 10-15% of the cost of crude oil.
4. Now when this is sold, there is excise, sales tax etc - which again goes into Govt treasure.

The consumers/public buys the stuff. And ultimately pays the price of customs, loss of value of rupee vis-a-vis dollar, and the excise and sales tax.

Can we help it?
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Old 27th September 2011, 16:25   #17
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First of all the initial math given by UKDEREBAIL is flawed. Crude oil we get now-a-days is heavy Crude oil with low refining %. what it means is almost 25-35% by volume is lost in terms of Biproducts like Asphalt, Coke, Tar etc which are sold at throw away prices. Balance 65% which actually get refined we have significant amount of Gas/Kerosene as bi-products which need to be subsidized heavily. then comes Diesel which is subsidized to the tune of 8-10% hence the price of Petrol is high and I do not think it i subsidized.

A different view - what Indian government is doing is right. They are pricing petroleum products higher so that the consumption is lower. Imagine if the petrol prices are at 30 rs./lt then we would have almost double/triple the consumption we are having today. It will put in lot of pressure on import and FOREX which india can't afford. Imagine during the 80's we did have petrol shortage and we use to queue for ages in petrol pumps to fill in the tanks of our cars and bikes. We are better off with higher prices,lesser consumption and no shortage.
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Old 27th September 2011, 16:37   #18
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Default Re: Petroleum Pricing in India ? Debate

Quote:
Originally Posted by singleton View Post

Would be glad if someone can answer these -
Do we have any stats on how much the PAT of these companies have changed YOY from 2009 till now.
2007 2008 2009 2010 2011

PAT OF IOC 7499 6962 2949 10220 7445

PAT OF ONGC 15642 16701 16126 16767 19924

These are the exact figures of profitability except in the election year 2009 the profits of Oil companies have been consistently higher. ( all in crores )

Last edited by ukderebail : 27th September 2011 at 16:42.
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Old 27th September 2011, 16:50   #19
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Quote:
Originally Posted by DieselFan View Post
First of all the initial math given by UKDEREBAIL is flawed. Crude oil we get now-a-days is heavy Crude oil with low refining %. what it means is almost 25-35% by volume is lost in terms of Biproducts like Asphalt, Coke, Tar etc which are sold at throw away prices.

Domestic crude is lighter crude therefore yielding higher percentage Petrol and Diesel.

A different view - what Indian government is doing is right. They are pricing petroleum products higher so that the consumption is lower. We are better off with higher prices,lesser consumption and no shortage.
I agree with you higher pricing to decrease or deflate demand or consumption. But uniform pricing of Petroleum products across India is a must. It only requires the right software.


Quote:
Originally Posted by ukderebail View Post
2007 2008 2009 2010 2011

PAT OF IOC 7499 6962 2949 10220 7445

PAT OF ONGC 15642 16701 16126 16767 19924

These are the exact figures of profitability except in the election year 2009 the profits of Oil companies have been consistently higher. ( all in crores )
Quote:
Originally Posted by alpha1 View Post
^ Correct, and ultimately profit made by them will lead to generation of employment as well as filling the money trunk of the Govt (via taxation).

1. 90% of Crude oil has to be imported. That means we have to pay foreign currency to buy this. Usually dollars. (which we means this keeps the pressure on rupee-dollar conversion rate)

Can we help it?
Govt is importing only 50% of the crude requirement, domestic production of crude is lighter and yields more petrol and diesel.

Last edited by ukderebail : 27th September 2011 at 16:52.
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Old 27th September 2011, 17:01   #20
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Default Re: Petroleum Pricing in India ? Debate

Quote:
Originally Posted by aby View Post
Too many incorrect figures in the post.

1) ONGC Profits and Asset statement have been inflated by a FACTOR OF 10. They only have 14k Cr in bank and 18k odd crore of profits. Compared to global biggies ONGC is a small Fish

2) I don't know where you got the ATF number from. but going by IOC data it varies from 58 Rs/lit in Delhi to 65 Rs/lit in Kolkata. Aviation Turbine Fuel : Industrial Fuel : Essential Oils

If you have to blame anybody, blame the State Governments, each of whom have created an arbitrary tax structure.

To give an example Sales Tax for Diesel is 18%, Petrol - 29% in Karnataka. In TN it is closer to 8% and 14% respectively.

While I don't disagree with the notion that prices ought to be rationalized and more importantly subsidies have to be removed. Hitting at the Oil companies is not the right way. After all they are in the business to make money.
Yes their balance sheet is published is in millions instead of crores, the correction has been carried out even before anyone could point out by me.

Rationalisation of prices is secondary first is uniformity of prices across India is fundamental, most well managed companies have neutralised the effects of differing tax structures in states to negate the policies of state govt. Now the union govt has been trying to bring in GST for over 6 years. I am sure they will never succeed or rather it will be a miracle.
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Old 27th September 2011, 17:23   #21
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Default Re: Petroleum Pricing in India ? Debate

Despite Subsidies, India’s Diesel Prices Relatively High, Report Says ,Times (see page 9 of the attached report!)

If diesel and gasoline retail prices in India were to be calculated on a "purchasing power-parity" (PPP) basis – comparing the average Indian consumer income against average incomes in other nations – then the PPP-adjusted fuel prices would be among the highest in the world.
Times of India, found a study, analyzing the PPP-adjusted price of fuels among 157 nations in the world.
According to the study, "Indian prices are amongst the highest in the world at current exchange rates. And, if you even out the differences in purchasing power of different currencies, then Indian petrol and diesel prices become the highest barring some tiny, remote countries.
"Even a simple comparison of retail prices in different countries by converting them to Indian rupee reveals that petrol in India is more expensive than 98 other countries.
"Petrol is cheapest in Venezuela at just Rs 1.14 [US$0.02] per liter. In Iran it sells for Rs 4.8 [US$0.10]per liter.
"The second group comprises of countries like the U.S., Iraq, Indonesia, etc, where minimal tax is levied on petroleum products. They also have lower prices than India
"India tops the group of countries which have moderate to high tax regimes. Others in the group are the EU countries and others like Singapore, New Zealand, Thailand and Brazil.
"At Rs 69.90 [US$1.46] – the average price of petrol in 24 Indian cities – Indian prices are now comparable to price of petrol in EU.
]"However, price comparisons done like this – by converting into one currency using the exchange rate – are deceptive. Petrol prices equivalent to Rs 96.39 [US$2.02] per liter in the UK might not pinch the English in the same way as Rs 69.90 [US$1.46] will clobber Indians.
"So, how does one compare prices across countries? This is done by the widely used Purchasing Power Parity (PPP) method. Differences in purchasing powers are evened out and relatively real price comparisons emerge.
"Using PPP prices, petrol is by far much more costly in India than most countries. PPP price of petrol in India is US$3.95, lower than just three small countries – Timor- Leste, Malawi and Eritrea.
"Petrol costs less than a dollar in the OPEC and USA [if using the PPP index] while in most of Europe, Russia, Japan, China and the Americas, it is priced between US$1 to US$2 by PPP calculations.
"Despite huge subsidies, diesel is more expensive in India than 136 other countries. Costing $2.46 at PPP, India is 23rd most-expensive in diesel prices.
Attached Files
File Type: pdf dfn20110926.pdf (2.40 MB, 1599 views)
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Old 27th September 2011, 17:30   #22
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Default Re: Petroleum Pricing in India ? Debate

Quote:
Originally Posted by ukderebail View Post
2007 2008 2009 2010 2011

PAT OF IOC 7499 6962 2949 10220 7445

PAT OF ONGC 15642 16701 16126 16767 19924

These are the exact figures of profitability except in the election year 2009 the profits of Oil companies have been consistently higher. ( all in crores )
Dear Sir,
Bottom line of oil companies is boosted by government due to government subsidy funds.

Oil Marketing companies, continuously need to expand their refining capacities and also, quality of fuel needs to be improved to meet BHARAT requirements.

All this expansion requires funds. And when one needs to raise funds from the open market, one requires a strong balace sheet.

So, the government boosts their balance sheet by providing subsidy cash. Also, oil producers like ONGC, etc. have to shell out cash as subsidy to oil marketers.

If companies like ONGC run out of cash, they can't buy international assets, cannot explore local fields, etc. How do you
suggest India will survive the future then?

balance sheet of IOC: http://www.iocl.com/download/Audited...ts_2010-11.pdf

See cuttings from financial results below:
Name:  ioc financial results_1.jpg
Views: 1616
Size:  320.2 KB



Also, as with regards to high taxation:
Average household income in India is very low.
Just 3% of the whole population pays income tax.

The government requires money for the upliftment of those who are not fortunate enough money wise. Where will all this money come from??

So, please refrain from sensationalization but read the fine print in news items.
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Old 27th September 2011, 17:39   #23
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Default Re: Petroleum Pricing in India ? Debate

Quote:
Originally Posted by ukderebail View Post
Yes their balance sheet is published is in millions instead of crores, the correction has been carried out even before anyone could point out by me.

Rationalisation of prices is secondary first is uniformity of prices across India is fundamental, most well managed companies have neutralised the effects of differing tax structures in states to negate the policies of state govt. Now the union govt has been trying to bring in GST for over 6 years. I am sure they will never succeed or rather it will be a miracle.
For GST to be effective on petroleum products, they have to be put in the list of "Declared good". The Finance ministers have deliberately kept it outside the list (along with liquor) so that there is no standardization on taxes.

And if some state charges higher taxes than others, why should the companies adjust their margins? In a democracy the stakeholders (read voters) should demand it. Charging higher rates in one state to balance out tax differences is like penalizing a more efficient state - which in the long run can be bad for the economy.
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Old 27th September 2011, 17:56   #24
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Default Re: Petroleum Pricing in India ? Debate

Barath[/quote]

Quote:
Originally Posted by amitwlele View Post
I am shocked to see this figures. I quickly went to the corporate sites of ONGC and BP to check it out. Not that i don't believe you but wanted to see it with my own eyes.

Why does government always say that these companies are suffering losses???
Govt. wants higher yield of taxation and dividends from Oil PSU is understood, because there is no underbilling or avoidance of taxes by PSU companies.


Quote:
Originally Posted by Chetan_Rao View Post

Balancing essential commodity prices against entertainment items is absurd. Period.
Uniform pricing is the way to go in the first step for petroleum products.


Quote:
Originally Posted by jalsa777 View Post
Dear Sir,
Bottom line of oil companies is boosted by government due to government subsidy funds.

If companies like ONGC run out of cash, they can't buy international assets, cannot explore local fields, etc. How do you
suggest India will survive the future then?

Also, as with regards to high taxation:
Average household income in India is very low.
Just[b] 3% of the whole population pays income tax[/B

The government requires money for the upliftment of those who are not fortunate enough money wise. Where will all this money come from??

So, please refrain from sensationalization but read the fine print in news items.
I am happy that Oil companies are making huge profits, i am not trying to sensationalise or casting aspersions on their return. These PSU's are infact contributing to fill up the deficit in budgets rather than govt subsidising them. I am batting for uniform pricing across India and against LPG price hike claiming international parity.


Quote:
Originally Posted by aby View Post
For GST to be effective on petroleum products, they have to be put in the list of "Declared good". The Finance ministers have deliberately kept it outside the list (along with liquor) so that there is no standardization on taxes.

And if some state charges higher taxes than others, why should the companies adjust their margins? In a democracy the stakeholders (read voters) should demand it. Charging higher rates in one state to balance out tax differences is like penalizing a more efficient state - which in the long run can be bad for the economy.
Why should Oil companies adjust their basic price is simple, they will not loose a single pie. An average outflow of sales tax is calculated and than a mean tax rate is arrived. At least consumers will pay uniform price on petroleum products across India. This is fundamental for any marketing of FMCG product in India. Is Hindustan Lever management a fool to charge uniform prices across India is my key question.
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Old 27th September 2011, 18:20   #25
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Default Re: Petroleum Pricing in India ? Debate

Quote:
Originally Posted by ukderebail View Post
Why should Oil companies adjust their basic price is simple, they will not loose a single pie. An average outflow of sales tax is calculated and than a mean tax rate is arrived. At least consumers will pay uniform price on petroleum products across India. This is fundamental for any marketing of FMCG product in India. Is Hindustan Lever management a fool to charge uniform prices across India is my key question.
Point no 1: Oil cos in the current scenario aren't losing a single paisa either as Petroleum being more or less an essential commodity. And except people living very close to state border, nobody really crosses state boundary to fill up.

Point no 2: please don't compare HLL with Oil, they are different business. The stuff which HLL sells is classified as a good as per concurrent list and there is a max VAT which the states can levy. Plus the tax rates are more or less harmonized across the country. Not so with petroleum.

BTW has it occurred that the only other major product which is not a declared good is Alcohol products. And no wonder you see same kind (or even worse) variation in prices like in Petrol.

Point no 3: Petroleum prices are highly politically sensitive unlike soaps and toothpastes. Raise the price of a bar of soap (the FMCG business you refer) by 10% you won't see people on the streets protesting. Have you thought about the political implications of what you are suggesting.

Let me explain the further - Just take price in two different states.
Price of Petrol in Chennai - Rs. 70.8/lit. In Bangalore it is 74.7. What is the reason for difference? One word Taxes. In short there is almost 7% difference in State tax rate of Karnataka and TN. To balance that if Oil Cos start charging higher basic rate in TN and lower rate in Karnataka, you think the people/Politicians of TN will be quiet? They will take to the streets demanding to know why Oil Cos are charging higher rates in TN than Karnataka. In short why should people of TN pay up because tax rates of Karnataka is high?

It is easy to suggest, but Oil pricing is a highly sensitive issue, armchair experts like us will not be able to scratch the surface of its complexity.

Last edited by aby : 27th September 2011 at 18:22.
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Old 27th September 2011, 19:27   #26
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Default Re: Petroleum Pricing in India ? Debate

It is not easy to bring in uniform pricing. Look at why VAT was delayed and now GST. The problem is states dont want interference in collecting taxes, even if their own party is at the centre. It is very difficult to arrive at a consensus

Personally, even though it pinches me too, I feel the high price of petrol is ok. It is required to keep the consumption in check. We dont produce much oil, and we dont have much leverage with opec countries like US has to get it at reasonable rates with long term contracts.
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Old 27th September 2011, 20:01   #27
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Quote:
Originally Posted by mxx
Personally, even though it pinches me too, I feel the high price of petrol is ok. It is required to keep the consumption in check. We dont produce much oil, and we dont have much leverage with opec countries like US has to get it at reasonable rates with long term contracts.
+1 to that.
80+% of our oil is imported using precious foreign currency since oil is priced in $.

If we cannot find/produce more oil domestically, the government does not have much choice other than limiting consumption. We are neither a rich country nor are big consumers (compared to other developed nations like US) so that we can have some leverage with the oil producers when it comes to long term pricing contracts.

Yes, we have built a lot of refineries in the past decade (compared to almost none in the US during the same period). But most of them get crude from the middle-east and export the refined output since that is more profit generating than selling in the domestic market.
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Old 27th September 2011, 20:04   #28
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Default Re: Petroleum Pricing in India ? Debate

Quote:
Originally Posted by ukderebail View Post
But uniform pricing of Petroleum products across India is a must.
I do not understand why you feel that uniform pricing of petrol across the country is a must? Tax on petrol is state subject and hence each state has the freedom to decide how much tax they would like to generate via sale of petrol , diesel or an commodity for that matter.

There is no way oil cos can have differential pricing in different states just to keep the price uniform in all states. Would it be fair if oil companies charged Karnataka lower price to 'compensate' its citizens for the high tax charged by its state as against Tamilnadu? You think the Central Govt. will be able to handle that?
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Old 27th September 2011, 20:48   #29
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Quote:
Originally Posted by aby View Post
Point no 1: Oil cos in the current scenario aren't losing a single paisa either as Petroleum being more or less an essential commodity. And except people living very close to state border, nobody really crosses state boundary to fill up.

Point no 2: please don't compare HLL with Oil, they are different business. The stuff which HLL sells is classified as a good as per concurrent list and there is a max VAT which the states can levy. Plus the tax rates are more or less harmonized across the country. Not so with petroleum.

Point no 3: Petroleum prices are highly politically sensitive unlike soaps and toothpastes. Raise the price of a bar of soap (the FMCG business you refer) by 10% you won't see people on the streets protesting. Have you thought about the political implications of what you are suggesting.

It is easy to suggest, but Oil pricing is a highly sensitive issue, armchair experts like us will not be able to scratch the surface of its complexity.
Quote:
Originally Posted by mxx View Post
It is not easy to bring in uniform pricing. Look at why VAT was delayed and now GST. The problem is states dont want interference in collecting taxes, even if their own party is at the centre. It is very difficult to arrive at a consensus

Personally, even though it pinches me too, I feel the high price of petrol is ok. It is required to keep the consumption in check. We dont produce much oil, and we dont have much leverage with opec countries like US has to get it at reasonable rates with long term contracts.
Quote:
Originally Posted by Santoshbhat View Post
I do not understand why you feel that uniform pricing of petrol across the country is a must? Tax on petrol is state subject and hence each state has the freedom to decide how much tax they would like to generate via sale of petrol , diesel or an commodity for that matter.

There is no way oil cos can have differential pricing in different states just to keep the price uniform in all states. Would it be fair if oil companies charged Karnataka lower price to 'compensate' its citizens for the high tax charged by its state as against Tamilnadu? You think the Central Govt. will be able to handle that?
I am at loss to explain why all the people are against uniform petroleum pricing in India I am not suggesting that states should loose revenue, the sales tax percentage will remain the same, more or less states charge from 18 to 30% sales on petrol. The mean average outflow calculated will arrive at around 25% from companies point of view. It does not mean states which are charging 30% will get 25% tax, they will continue to get 30% whereas the oil company will adjust the basic rate. The oil companies does not loose a single NP nor states their percentage of tax. But the price of Petrol will be uniform across India, one nation one product and one price. This is how well managed companies function, it has been undertaken by Levers almost 2 decades ago, i hope some CA explains this phenomenon in a better and logical manner.

The same logic can be carried forward for vehicles too, one brand, one price across the nation. The consumer will not be taken for a ride if dealership is monopolised by one family or cartel. I am sure it will be a win win situation for the company and consumer alike.

Last edited by ukderebail : 27th September 2011 at 21:15. Reason: vehicle
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Old 27th September 2011, 21:15   #30
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Default Re: Petroleum Pricing in India ? Debate

I don't understand differential pricing in one country :-(

I can understand if there is some transportation involved, climatic factors involved, supply-demand is skewed, but not otherwise.

States were created for better management. Why should Karnataka have insanely high taxes on fuel and even road tax for vehicles? Why shouldn't cars registered elsewhere need to cough up insanely high 'life-time' road taxes again?

I may be an arm-chair activist, and not know economics, but I just cannot fathom 1.5L Rs difference between the same car in Delhi and Bangalore (say New Honda City)
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