[ukderebail]

I believe Govt should promote usage of Petrol combined with LNG or CNG cars rather than Diesel cars, in this direction it is better to halve the taxation on petrol cars. There is a huge profit to be made on sale of Petrol for the Govt. This would ideally reduce pollution as well fill the coffers of the Govt PSU companies.

[Anarchy83]

Originally Posted by EagleEye

Being familiar with the petroleum industry, I know that this would do some good to take off some of the burden from oil companies of under-recoveries from diesel.

So I say, tax the petrol cars to hell and give tax rebates on the diesel vehicles. How does that sound?

Finally, the voice of reason prevails. EagleEye, this was a very well-laid out post and I wish you were a government big-wig who can make this happen.

Unfortunately, Indian politicians traditionally believe in eating food by taking your hand around your head. I can't believe the masses cannot see the huge spiral effect the proposed move will have. We are being herded in certain directions with no justification provided - here the agenda being driving petrol revenues, and therefore this proposed "tax" hike. What people don't seem to ask is, why should we drive petrol revenues higher? What is the core reason?

India ranks somewhere at number 23 or 24 in terms of crude extracted from reserves (petroleum distillation not included). Out of this, our export is practically non-existent. Further, in an econometric analysis of petroleum import which I was reading about 2 years back, the experts had analyzed that the imports are increasing not in proportion to need but in proportion to revenues from petroleum.

This sounds retarded to me - we are spending significant amounts on bringing in something with the hope of increasing revenues so that we can bring more in.

Why don't we work with what we have already? Why does the government behave in such an illogical manner?

I have yet to see a single person on this thread who supports the move substantiate it with numbers and figures which highlight the need for this quasi-madness.

[ninjatalli]

@eagleEye that was on of the most logical post on this thread, considering we have gone offtrack to discuss farmers and their plight.

For all those recommending higher taxes on diesel and removing subsides on diesel - please first understand that the actual cost of petrol and diesel are far lesser (less than 50%), so there is no discounting done by the govt.

What the govt does is impose a huge amount of taxes and excise duty on petrol increasing the price to more than 220% of the original price. The same figure for diesel comes to 170% and hence the difference in prices (also base price of diesel is slightly lower than petrol).

The same (taxes) for kerosene is almost zero.

Now do we really start advocating higher taxes on diesel just because they are stating losses?

And when we talk of losses, we might first understand costs. These are PSUs we are talking about - there are bound to be huge un-necessary costs that need to be reduced.

My father who had been working at IPCL for the past 30+ years has seen a bungling org. with massive un-necessary costs being turned into a huge profit making org by Reliance (once they bought IPCL) by simply reducing the day-to-day operational costs (in addition to other factors).

Now all this is a moot point - our ramblings are not going to make any diff to the government or its decisions, but I felt everybody should have a broader view of the situation than just believing that increasing the price of diesel/more taxes would solve the issue.

[drmohitg]

PSUs are a recipe for mismanagement. I would be very glad if all of these are re-formatted drastically.

A little off topic: I have always debated if we should rather encourage diesel cars more across the country? They pollute less ( going by the recent reports) and return a higher FE. The FE figures easily vary between 3-5 kmpl model to model for the petrol and diesel variants. Extrapolate the same to a nationwide scenario and I think we can reduce the total amount of fuel used by a massive amount. Wouldn't that be good for the economy by in turn reducing the amount of oil we need to import? Would love to hear some comments on this from you guys.

[RadiantKarma]

Government is doing a consistent job of creating a largely acceptable perception of helping the poor and the needy.

So what if it creates high fiscal deficit (ultimately leading to the very inflation that is feared and is the reason for not increasing the diesel price!), gives rise to inefficient fuel consumption patterns, results in adulteration and resultant environmental harms, breeds massive corruption and crime (even leading to acceptance of such criminal behaviour as normal among the aam junta), gives perverse incentive to oil companies to increast costs?

A simple rationalization of pricing and duties in line with the free market principle would do away with all these distortions, will give a one-time shock though, but benefit the overall economy in the long term.

But voters, routinely looking for free lunch, won't be happy. They are happy with the illusion of free lunch that actually is very costly in the long run, even for the really needy. The smart people controlling the nation also lose their "revenue stream" generated through the criminal nexus of adulteration, corruption and inefficiecy. So why do the obvious?

There is a saying in Gujarati "Lobhiya hoy tyaan dhutaara bhukhe na mare". It roughly translates as "Crooks always thrive among the greedy." So long as we, the people, do not give up our greed for free lunch, the crooks will keep on creating the illusion of free lunch and keep making merry for themselves!

In sum, another distortionary step will not straighten up the entire crooked regime, however well intentioned the whole idea might have been originally.

[diffsoft]

^^ Very well said! In fact "freeing" petrol prices and not freeing diesel would mean that soon petrol consumer may have to subsidize for diesel users.

Imposition of Govt duties on diesel cars to counter the effect of skewed subsidies is like making two wrongs and hoping it would sound right

Cheers,

[ukderebail]

India has petrol rich crude and therefore in its own interest should encourage Petrol driven vehicles. I would recommend zero tax and minimum life time tax on Petrol driven vehicles and no tolls on petrol driven vehicles in India. This would ensure that more petrol driven vehicles are sold for private sector and diesel vehicles reserved for public transport vehicles. The difference of Rs 25 to Rs 30 currently on diesel vs petrol will get negated. The govt will earn huge revenues from Sale of Petrol. It would be win win situation.

[Anarchy83]

Originally Posted by ukderebail

India has petrol rich crude and therefore in its own interest should encourage Petrol driven vehicles. I would recommend zero tax and minimum life time tax on Petrol driven vehicles and no tolls on petrol driven vehicles in India. This would ensure that more petrol driven vehicles are sold for private sector and diesel vehicles reserved for public transport vehicles. The difference of Rs 25 to Rs 30 currently on diesel vs petrol will get negated. The govt will earn huge revenues from Sale of Petrol. It would be win win situation.

Ukderebail - From where did you get information regarding India's petroleum rich reserves? For your information:

1. Country with Maximum Oil Reserves - Saudi Arabia (262 Billion Barrels)
   
2. India (Currently ranked at 21) - 5.7 Billion Barrels
   
3. India, in 2008 itself, was consuming 2,962,000 barrels per day (that ranks India as the 4th most oil consuming country in the world).
   
4. In 2009, India was producing only 877,000 barrels per day
   
5. In 2009, India was the 5th largest importer of oil (at 2,233,000 Barrels/day)

Forget Petrol, India does not even have large enough crude oil reserves. India has quite a decent bit of Natural Gas.

The biggest mistake in your post was "Petrol Rich crude". There is no such thing. Crude oil has certain properties which determines its quality. However what we get from crude oil is based on the refinery method used.

We do get more diesel at lower costs than petrol per refinery method. See the attached diagram from "www.cheaperpetrolparty.com/Oil_Price.php". The green represents the diesel yield per barrel of crude.



Bottom Line statement: India will ALWAYS need to import Petroleum. The current price on petrol and diesel are hiked due to tax considerations. By doing what you suggest, i.e.

zero tax and minimum life time tax on Petrol driven vehicles and no tolls on petrol driven vehicles in India

The government will get crippled. There will be nothing in the coffers.

Ukderebail - If petrol car owners fight against the diesel industry to see diesel prices increased, the only thing which will happen is both of us will lose. If you have a fact based reason on why the diesel rate is good for the economy, I am more than willing to listen. But opinions which are not based on fact can mislead people.

Also, I am not ready to be fooled by what the government says anymore - Gentlemen, all the data you need to understand the true scenario is available on the public domain. Please do your research to understand whether a move is good or not.

[Anarchy83]

Originally Posted by RadiantKarma

A simple rationalization of pricing and duties in line with the free market principle would do away with all these distortions, will give a one-time shock though, but benefit the overall economy in the long term.

Originally Posted by diffsoft

^^ Very well said! In fact "freeing" petrol prices and not freeing diesel would mean that soon petrol consumer may have to subsidize for diesel users.

To your reasoning, I need to let you know that upto $83/Barrel, diesel is not subsidized and upto $100/Barrel, petrol is not subsidized (both prices in terms of Indian basket of crude). The difference of $10/barrel for both is quite simple - additional cost of final product derivation.

Mr. Kirith S. Parikh, who also happens to be Member, Planning Commission, Government of India, Professor Emeritus and Former (Founder) Director (Vice-Chancellor) IGIDR and Chairman IRADe had written quite a nice document which explains in simple terms the complexities behind it all. (How Much Does India Subsidize Fossil Fuels? | indiapolicyforum.org)

Gents - Before excise, the difference in price between diesel and petrol is only approx. Rs. 2. Mr. Kirith has provided extrapolations from $75 to $90 per Indian crude basket. I have provided a cutting of his report below:



The point I'm trying to make is, we the public are already getting screwed over by the government. There will never be a situation where diesel owners are subsidized by petrol owners. I wish it would happen, but it won't.

Any benefit will be eaten up by the government due to inherent inefficiencies. Petrol prices will continue rising, and so will diesel. This is the final and hard cold truth. Taxing diesel will not give any respite to the petrol owners.

BTW - I hear petrol has risen by another Rs. 1.7 from midnight tonight. I wonder how everyone feels about that?

[EagleEye]

@Anarchy, I agree that whatever the case, producing diesel will cost less energy than producing petrol from crude. The graph you have provided is very informative, and nicely illustrates what I said in my previous post.

I think what ukderebail means is that crude coming out of India is the light variety which produces more petrol than the heavy ones.
Agreed, the biggest oil field in India, the Bombay High, produces light sweet crude. And even the KG basin (which is mostly gas) gives light crude. But the second highest reserves of India which are in Rajasthan (Thar desert) gives extremely heavy crude, and so does the Digboi oilfield in Assam. Trying to refine more petrol from these would mean wastage of so much energy in the cracking and coking processes.
Even in the Bombay High crude which is light, the percentage of diesel obtained is higher than that of petrol. With these facts, how can you say:

Originally Posted by ukderebail

India has petrol rich crude and therefore in its own interest should encourage Petrol driven vehicles. I would recommend zero tax and minimum life time tax on Petrol driven vehicles and no tolls on petrol driven vehicles in India. This would ensure that more petrol driven vehicles are sold for private sector and diesel vehicles reserved for public transport vehicles. The difference of Rs 25 to Rs 30 currently on diesel vs petrol will get negated. The govt will earn huge revenues from Sale of Petrol. It would be win win situation.

It's not true! By encouraging more petrol vehicles you are taking efficiency out of the system. I proposed doing the exact opposite thing in my previous post. Why do you think ships run on furnace oil and not petrol or CNG? It is simply the most efficient fuel for transportation! Of course road transport vehicles simply cannot accommodate the huge furnaces needed to burn FO, so they use (should use) the next best thing: diesel.

The reason why petrol ever became popular is because in the days when refineries were first being installed around the world, diesel engine technology was very much undeveloped. Plagued by performance issues such as poor acceleration and low top speed, wear-and-tear issues affecting the life of the engines, and the inability to curb engine vibration which led to loosening of body parts of the car before they should, they were restricted to commercial usage and nobody in their right minds would have wanted to drive a diesel as a personal vehicle. So refiners modified their refineries to produce lots of gasoline.

Thanks to the millions of $$ invested in R&D and the subsequent leap in diesel engine tech, we can now enjoy what people couldn't earlier: diesel that costs less to refine providing (very nearly) the same performance of petrol! Wear-and-tear has been addressed by the lubricants industry which have developed specialized diesel engine oils of higher quality than ever before. We have learned to control the vibration by making the engines heavier (of course the increase in power enabling it to pull its own heavier load).

Even if we stop considering the low refining costs of diesel for a moment, diesel has more joules per liter than petrol does (well all of us Indians already knew that; diesel gives more mileage than petrol). But for your information diesel engines are more efficient at converting the chemical energy into heat energy and then kinetic energy. An estimated 50% percentage of the inherent energy in diesel can be converted for usage. Compare this to a petrol engine, which has its efficiency at only 25-30%!!

So basically you're spending more to buy lighter crudes, investing heavily on refinery modules to get more petrol, spending energy on these modules on a daily basis, laying a public distribution system for two fuels which reduces efficiency... all for a fuel which has lower calories for a given volume, PLUS only 30% of these calories is usable!!

-------
Regarding the other subject: cigarettes... Well, I don't care two hoots if the government imposes 500% taxes on it or 5000%. I'd rather they just ban the stuff, it's not helping anybody in any way.
Or wait... Sales of cigarettes contribute towards the GDP of India. And it also directly contributes towards the supply of patients to hospitals for various ailments. More patients means more money spent on the hospitals, which also contributes towards GDP. Not to mention the manufacturing of all those cancer equipment required by the hospital management, the production of all those medicines, construction of more hospitals to accommodate more patients, which all contribute to a higher GDP! So the government should blindly double/triple/quadruple the supply of cigarettes in the country, and start permitting their ads again to witness a shoot in GDP growth and a booming healthcare industry. Plus more tax revenue from cigarettes at existing tax rates means they can give tax rebates on fuel! Win-win-win!!

P.S. I hope no politician reads this bit.

[basky]

Parkinson's law by Cyril Northcote Parkinson once famously said "Work expands so as to fill the time available for its completion." Corollary " Expenses rise to meet income - and if possible surpass it"

He attributes the growth of bureaucracy by (1) "An official wants to multiply subordinates, not rivals" and (2) "Officials make work for each other" thereby increasing bureaucracy irrespective of any variation in the amount of work (if any) to be done."

In short The Govt needs our money to perpetuate their reason to exist. Prices will continue to go up.

[ukderebail]

Ukderebail - If petrol car owners fight against the diesel industry to see diesel prices increased, the only thing which will happen is both of us will lose. If you have a fact based reason on why the diesel rate is good for the economy, I am more than willing to listen. But opinions which are not based on fact can mislead people.

Also, I am not ready to be fooled by what the government says anymore - Gentlemen, all the data you need to understand the true scenario is available on the public domain. Please do your research to understand whether a move is good or not.[/quote]

My father has worked lifetime in Petroleum industry, naturally the information emanating is authentic from the angle of crude production. There are two types of crude oil being produced one is heavy grade and second one is light grade, which is also known as sweet grade. This has been beautifully elaborated upon by Eagleye. Whatever the Indian production 80% of crude is from Bombay offshore and K.G.Basin which is of lighter grade, which has petrol rich content, since the Diesel consumption is more it is converted to Diesel. The point i am trying to make is that the cost of production of Petrol is much cheaper for Petroleum companies which is not more than Rs 16 per litre when compared to Rs 20 for Diesel. So it makes economic sense to produce more petrol and sell more petrol because of the earnings for PSU companies. There is least resistance for price increase for Petrol in India.

Secondly if there is real freeing of pricing in Petrol and Diesel than Petrol will be sold cheaper than Diesel in India. This is obviously because of the cost advantage of production and profitability thereof. Diesel prices are still controlled by the govt in lieu of its inflationary fuelling tendency.

I am not trying to create a controversy on this subject matter of trying to promote petrol consumption just because i own a petrol driven car. An Aam aadmi who is two wheeler owner in general too is dependent on Petrol. So price increase in petrol affects the Aam Aadmi in general. The diesel price increase affects the prices of food articles. I only hope prices of diesel and petrol are equal in the long run so that adulteration is ruled out. The more the difference in the price of diesel and petrol adulteration will become rampant.

[souravc]

Originally Posted by ukderebail

Whatever the Indian production 80% of crude is from Bombay offshore and K.G.Basin which is of lighter grade, which has petrol rich content,

The basic premise of your arguement is wrong , please read anarchy's post where he has taken the pains to explain it so that we can read it and understand it. With regards to your second point about how without any intervention price of petrol would be lesser than diesel , unfortunately facts prove otherwise , please refer to the table below which gives the prices of petrol and diesel in various european countries. In fact anarchy has explained why diesel is cheaper to produce than petrol so please read it.

Country Unleaded 95 petrol price per litre in euros October 2011 Diesel price per litre in euros October 2011 Austria 1.35 1.31 Belgium 1.44 1.30 Czech Rep 1.32 1.32 Denmark 1.47 1.34 France 1.48 1.30 Germany 1.49 1.36 Greece 1.59 1.40 Hungary 1.19 1.18 Ireland 1.50 1.43 Italy 1.63 1.52 Latvia 1.24 1.24 Luxembourg 1.32 1.18 Netherlands 1.55 1.32 Norway 1.78 1.65 Poland 1.22 1.20 Portugal 1.50 1.35 Slovakia 1.46 1.35 Slovenia 1.31 1.24 Spain 1.33 1.25 Sweden 1.48 1.53 Switzerland 1.38 1.40 United Kingdom 1.58 1.62

[ Realised that the table is not getting displayed . please read the data as country followed by petrol price which is in turn followed by diesel price . The Link is here http://www.drive-alive.co.uk/fuel_prices_europe.html

[RadiantKarma]

Originally Posted by Anarchy83

...upto $83/Barrel, diesel is not subsidized and upto $100/Barrel, petrol is not subsidized...
.................................................. .......
There will never be a situation where diesel owners are subsidized by petrol owners.

Though I never used the word 'subsidy' myself, whether it is subsidy or differential duty structure for different fuels or compensating the under-recoveries of OMCs by upstream oil companies (the money which would have otherwise been utilized for investing in securing nation's energy security), it'a all distortionary economics.

Any benefit will be eaten up by the government due to inherent inefficiencies. Petrol prices will continue rising, and so will diesel. This is the final and hard cold truth. Taxing diesel will not give any respite to the petrol owners.

Hence the need to adopt free market principles that will also enable competition through entry of private players.

BTW - I hear petrol has risen by another Rs. 1.7 from midnight tonight. I wonder how everyone feels about that?

and

[mkaysaw]

All non-smokers would love/not be affected by a hike in the price of cigarettes, whereas smokers would loathe the idea of the price hike. Similarly, all petrol drivers would love/not be affected by a hike in Diesel Prices (their re-sale values go up) wheres all Diesel Car Drivers would be negatively affected.