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Old 27th September 2011, 21:25   #31
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Default Re: Petroleum Pricing in India ? Debate

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Originally Posted by sriramv.iyer View Post
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)

This is precisely what i batting for at least for a starter Petroleum product is an essential product not a luxury or vice like liquor I am sure the companies and economist will realise eventually the importance of this uniformity of price on petroleum to consumers.

Mr Iyer as rightly pointed out by you why should you end up paying 1.5 lakhs more for a HONDA in Bangalore. Does it mean that one is a VIP if he is staying in Delhi and he is entitled for a huge discount of 1.5 Lakhs or does it indicate that HONDA sold in Delhi is inferior.
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Old 27th September 2011, 21:42   #32
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Default Re: Petroleum Pricing in India ? Debate

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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.
Lets assume your proposal is adopted.

For ease of calculation let us assume basic selling price of petrol is Rs. 60 and Sales tax is 10% in Karnataka and 5% in Tamilnadu. That would make the price of petrol Rs. 66/- in Karnataka and Rs. 63/- in T.N. Hence in order to keep the uniform, the Oil Co. would have to increase its basic price by 2.85 in T.N to make it Rs. 62.85, whereby the selling price after tax would be Rs.66/- : same as the other state i.e. Karnataka.

If this is how it works, would it not be foolish for the T.N govt. to have lower tax rate on petrol?They are losing out on tax revenue whereas the neighbouring state is able to generate more revenue while their people are shelling out the same price as the other state. In fact their sacrifce of lower tax is allowing the oil co. to charge them more. Then what is stopping the state govt. to increase the tax rate to 50% in their next budget?!!! The oil co. is anyway adjusting the basic rate to keep the price uniform.

Petrol or diesel is not some random commodity. One country one price sounds nice for FMCG or luxury goods but for essentials like petrol, milk, pubic transport, etc... it is highly impractical and virtually impossible for a vast country like ours with state structure of administration and governance.
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Old 27th September 2011, 21:54   #33
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Default Re: Petroleum Pricing in India ? Debate

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Petrol or diesel is not some random commodity. One country one price sounds nice for FMCG or luxury goods but for essentials like petrol, milk, pubic transport, etc... it is highly impractical and virtually impossible for a vast country like ours with state structure of administration and governance.
Santosh i am glad that you understood the pricing mechanism. Now coming to the rational of states trying to exploit the consumer, the current sales tax structure is frozen under the formula. This would ensure that states don t hike tax on petroleum products and get away. Seondly it will prevent a major potential scam in future, what prevents a dealer to purchase petrol in T N say a border town of Hosur there is a clear 10% ST differential, he cooly crosses the border and sells in vicinity of karnataka border. A cool Rs 7 differential, one 10 kl will fetch him 70,000 multiply it for 100 trucks. So a major potential scam can be averted. Thirdly as a consumer why should i pay even a single paise extra for the same product.

Last edited by ukderebail : 27th September 2011 at 21:56. Reason: grammer
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Old 27th September 2011, 21:57   #34
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Default Re: Petroleum Pricing in India ? Debate

To sum up the arguments : The whole petroleum pricing is deliberately kept confusing for political reasons. Oil companies buy low grade (sulphur rich) fuel. Central Govt taxes the imports. Oil companies add on cost (inflated?) and profit/loss. State Govt joins in the frenzy to get its share of the pie. Ultimately the consumer gets fleeced by all of them and have to settle for low quality fuel at high prices.

With the roads chaotic, we also waste a large percentage of our low grade fuel purchased at high prices - never mind the damage to our cars.
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Old 27th September 2011, 23:07   #35
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Default Re: Petroleum Pricing in India ? Debate

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eg. Petrol in Karnataka costs 75 bucks a litre, whereas in Pondicherry it is 65. A car of a 45 litre fuel tank costs Rs. 450 more to fill in Bangalore than it does in Pondicherry (or some other states/UTs).

Diesel, the consumer-friendlier fuel, is almost the same in all states, wonder why ?
I do believe diesel is cheap since its used for transportation of grains and other essential commodities.
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Old 28th September 2011, 08:21   #36
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I do believe diesel is cheap since its used for transportation of grains and other essential commodities.
One of the arguments actually. Diesel is one of the most adulterated fuels in India. The pricing of adulterant like kerosene etc encourage this at all levels - from the big time mafia to the fuel pumps. Because of the political patronage, little is being done about it. If you calculate the damage to our vehicles, it is an astronomical cost.
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Old 28th September 2011, 08:43   #37
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Default Re: Petroleum Pricing in India ? Debate

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To sum up the arguments : The whole petroleum pricing is deliberately kept confusing for political reasons. Oil companies buy low grade (sulphur rich) fuel. Central Govt taxes the imports. Oil companies add on cost (inflated?) and profit/loss. State Govt joins in the frenzy to get its share of the pie. Ultimately the consumer gets fleeced by all of them and have to settle for low quality fuel at high prices.

With the roads chaotic, we also waste a large percentage of our low grade fuel purchased at high prices - never mind the damage to our cars.
Agreed Busybee socio-political compulsions have kept the petroleum prices amongst the highest in India, but what we deserve as consumers and citizens of India is uniform pricing. We cannot be bickering on this basic right to have uniform pricing. Otherwise it is like the old Maharaja days wherein each one chose his own form of taxation. It just requires a joint meeting of oil companies to decide in the interest of consumers to have uniform pricing. Otherwise it will be used as vote bank politics by ruling parties in the election year bring down the prices and hike it next year etc. Similarly one lifetime road tax all India for all private vehicles.
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Old 28th September 2011, 10:41   #38
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Default Re: Petroleum Pricing in India ? Debate

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Agreed Busybee socio-political compulsions have kept the petroleum prices amongst the highest in India, but what we deserve as consumers and citizens of India is uniform pricing.

It just requires a joint meeting of oil companies to decide in the interest of consumers to have uniform pricing. Otherwise it will be used as vote bank politics by ruling parties in the election year bring down the prices and hike it next year etc. Similarly one lifetime road tax all India for all private vehicles.
Point taken. But consumers are the last thing on the minds of the politicians, bureaucrats, crooks etc except as cash cows. We really dont matter in their scheme of things.

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Similarly one lifetime road tax all India for all private vehicles.
I think transport is primarily a state subject. It does not stop the central govt from coordinating a central registry of all vehicles and collecting & forwarding the road taxes to the states.

Unfortunately, there is too much underhand money in transport and no govt, central or state wants to upset the applecart - till we have an Anna Hazare to look into this sector.
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Old 28th September 2011, 15:25   #39
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Default Re: Petroleum Pricing in India ? Debate

The main problem of the issue (and I presume the thread) is that we Indians believe petrol + diesel + kerosene + LPG is our birth RIGHT.
Pretty much like water and air.

And it's govt's duty to ensure that we get these freely (without restrictions) at lowest price possible (possible for free - monetary).
Just like air and water!
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Old 28th September 2011, 15:44   #40
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Default Re: Petroleum Pricing in India ? Debate

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Originally Posted by alpha1 View Post
The main problem of the issue (and I presume the thread) is that we Indians believe petrol + diesel + kerosene + LPG is our birth RIGHT.
Pretty much like water and air.

And it's govt's duty to ensure that we get these freely (without restrictions) at lowest price possible (possible for free - monetary).
Just like air and water!
Looks like Sir has come from a highly developed west European country where everything is entitled to high amount of cost.
I know i mean offence and am sorry for that, but we are not telling to sell petrol at Riyadh prices.
The above mentioned things are nevertheless essential commodities in the modern life. Everything comes at a cost i agree and there is nothing like a free lunch but that doesn't mean daylight robbery. Anyone would agree that our petroleum prices are way more expensive and that too considering the quality of fuel we are supplied. Western European countries may have the highest petrol prices but still they get the highest quality too,more than even U.S.A.
Unlike us, low quality fuel at high prices. And the amount of taxes they charge on the fuel is enough for ensuring a good infra of roads and all, even then toll is being charged on any roads outside city limits which are in good condition,highways included.
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Old 28th September 2011, 15:46   #41
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Default Re: Petroleum Pricing in India ? Debate

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Originally Posted by alpha1 View Post
The main problem of the issue (and I presume the thread) is that we Indians believe petrol + diesel + kerosene + LPG is our birth RIGHT.
Pretty much like water and air.

And it's govt's duty to ensure that we get these freely (without restrictions) at lowest price possible (possible for free - monetary).
Just like air and water!
That IMHO is not the problem. The lack of a *reliable* public transportation system *is* the problem. This is the main reason why people use their own vehicle and therefore pricing of fuels is such a sensitive issue.

All this talk about saving forex for the country doesn't cut ice, when the only means I have to reach my office is my vehicle and obviously I need fuel for that! Increase in fuel prices will not show a direct correlation in bringing down the consumption.
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Old 28th September 2011, 18:36   #42
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Default Re: Petroleum Pricing in India ? Debate

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Originally Posted by ukderebail View Post
I am at loss to explain why all the people are against uniform petroleum pricing in India
Let us assume uniform pricing is taken up. Please tell me, what benefit will it bring? Who will it benefit?
Remember the taxes are decided by individual state and not the company. If this proposal has to see the light the states that currently have high taxes will ensure that it does not lose any revenue. And the only way to do that is by having all states adopting the level of tax that is levied in the state with the highest taxes.
Net result: the customers in states with low taxes will have to shell out lot more. And those in the states with already high taxes, does not have any advantage either. So, the customer is left with a scenario that is worse or same but never better.

No one is against it. Everyone is questioning the feasibility and many like me, also find it pointless exercise due to the reason stated above.

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Unlike us, low quality fuel at high prices.
The fuel quality is not low. Atleast what comes out after refining is not. If you are talking about adulteration, that is done after refining is done and company has already borne the cost of refining. If you are talking about octane, octane is not a measure of purity, but yes, agree that high octane is even pricier.

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That IMHO is not the problem. The lack of a *reliable* public transportation system *is* the problem. This is the main reason why people use their own vehicle and therefore pricing of fuels is such a sensitive issue.

All this talk about saving forex for the country doesn't cut ice, when the only means I have to reach my office is my vehicle and obviously I need fuel for that! Increase in fuel prices will not show a direct correlation in bringing down the consumption.
I dont know about other cities, but if you are talking about bangalore, i have to disagree with this statement. It is been less than 3 years since I got my own car here in this city. Before that my travel used to be entirely by bmtc. There are few places in the city that I have not traveled by bmtc. Most people dont use public transport either because they are lazy or because they feel that traveling in public transport is below their status.
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Old 28th September 2011, 19:20   #43
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Default Re: Petroleum Pricing in India ? Debate

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I dont know about other cities, but if you are talking about bangalore, i have to disagree with this statement. It is been less than 3 years since I got my own car here in this city. Before that my travel used to be entirely by bmtc. There are few places in the city that I have not traveled by bmtc. Most people dont use public transport either because they are lazy or because they feel that traveling in public transport is below their status.
Nope, this depends on where you stay. Even at Bangalore there are many places not serviced by BMTC or service is not reliable. Ex: Bagmane Tech park complex @ CV Raman Nagar employs thousands of people, but not even one BMTC service to that area from eastern part of Bangalore.
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Old 28th September 2011, 21:40   #44
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Post Re: Petroleum Pricing in India ? Debate

One barrel of Crude does not yield 100% Petrol. Depending on the type of crude (sweet, sour etc) the yield may be different. The refineries also have a limited capacity to produce components of a specific type. So if a barrel of crude is distilled, it might yield any where between 40 - 50 liters of crude. meaning about 1/3 of of a barrel is pertol. That way we can not really divide 102 $ per barrel / 3 to calculate the cost price of production.
so the math 105 $ / 3 ~ 35 $ and 35 X 45 = 1575 Rs leading to 1575 /45 = 35 is not really correct math. The whole 105$ per barrel needs to be distributed to all components. The cost of refining the gas is higher than the cost of other heavier fuel. So the petrol component takes a larger fraction of the cost. Also storage and transportation of lighter fuel like petrol is marginally more expensive than other heavier fuel.

However, all this does not justify the high cost of petrol in the country (especially in places like Bangalore where it is 75).

Now another thing to note is the economic of buying the fuel, India does not trade on Oil futures unlike the US. That way we always pay the current (or in other words) daily market price (not really daily but take is as concurrent). So price swing of crude effects us the most. I am not sure why we do not trade futures, but the reason I have heard is that we do not have enough money ??? (ridiculous is it not !).

The next factor is the Oil trading currency. Its the $ and we all know we are not insulated against the swing in it. For instance now even though the barrel price has dropped by a $ since the Re is at ~ 48 per $ we end up paying more even in a falling $ situation.

The next factor and one of the most important factor is that unlike US companies which are part of the upstream process for Oil production our companies are not part of the consortium from which we import. So the $ does not come back to us.

What ever be it on the Oil front out government over the years has not taken leadership to ensure that Indians can afford Oil. We are bare in the open to forces that we do not control, partner or even work with.

Remember how Iran had in the past months threatened to stop giving us Oil as we had unpaid bills? To top this we have a 100% net tax (adding all components) on Petrol !

We need another Anna movement to get this corrected :-) any takers ?
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Old 28th September 2011, 23:03   #45
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Balancing essential commodity prices against entertainment items is absurd. Period.
Chetan, you are spot on! Essential Commodity - Alcohol, Entertainment Item / Luxury Item- Petrol!

So govt thinks our thread, and this argument is absurd
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