[sgiitk]

Originally Posted by shuvc

The government did not forego any revenue. The revenue source was just transferred from petrol to diesel.

I take it as an indication of future policy shift - to being Diesel pricing at realistic levels, this is what th Kelkar committee also recommends.

[SR71A]

Even though the discussion has gone OT in parts, I hope the mods allow it as this deserves a reply.

I wonder why the hike was even required.

Sir, Hike was required as we are paying much less than the international prices of Petroleum products. Keeping prices artificially less breeds profilgacy, and skewed consumption patterns as seen in our country.

1) Subsidy.
GOI should declare the amount of taxes applicable on each litre of petrol, diesel, LPG,etc. and then mention subsidy.

Indeed they should.

2) Quality. Are we getting good quality and honest quantity ?

OMCs are operating within the social conditions prevalent in India. which includes politically connected dealers, Reservations based on caste in dealer selection, control over all aspects of Retail outlet operations by ministry Babus. Under the circumstances, I would say Oil companies are delivering good results.

3) Why are even OMC's even operating if they are SICK units ?

OMCs are not sick units by any definition.

If a firm is making loss, why pay huge salaries to its employes ? If a big private firm goes into red, the salaries of its employees are likely to be affected. If, lets say, Adani makes loss of Rs. 22,000 Crore. Then do you think that Adani employees would get high salaries ?

Losses made by OMCs are not due to their operational inefficiencies but due to Govt control. Adani will not even dream of entering such a business. Salaries being paid to OMC employees is not higher than commensurate Government staff, let alone matching their counterparts in private sector with similar experience and qualifications.

Reliance is not selling its fuel in India ( it was a political move, deliberately a lot of things were set against them ), but still is profitable unit. Why not IOCL ?

Reliance is not selling Fuel in India not because of any political compulsion but because they choose not to. Reliance has set up 27 MMTPA refinery in Jamnagar to market Fuels in India, but when Govt started exercising control over Fuel pricing, they applied to GOI for a SEZ and EOU status, as it became much more lucrative to Export Fuel than sell in India. GOI has gone out of its way to grant SEZ and EOU status to their already commissioned and functioning refinery. They have set up another refinery next door of 33 MMTPA capacity which was SEZ and EOU since start.

Reduce the salaries of govt. OMC employes to half of what they are getting and then see if profit is coming. Else, sell off those OMC and see some other major like RIL or even Shell, etc. eek out profit from IOCL.

I wish things should have been that simple.


[quote]

Originally Posted by aaggoswami

To highlight the ineffeciency of IOCL ( and other OMC ). And even with loss, IOCL ( and other OMC ) are not able to provide good quality fuel ( plus they cheat on quantity also ).

OMCs try very hard to ensure top notch quality and correct quantity in the limitations we work in. Can you confidently say a Reliance/ Essar dealer gives correct quality & Quantity??. In an industry where there is huge arbitrage opportunity between petrol/ Diesel/ Kerosene prices, it is big headache to police the dealers/ transporters and the mafia inbetween.

No OMCs cannot have their own system for policing and punishing the errant dealer. It is dictated by Ministry of Petroleum & Natural Gas, in a process which is full of loopholes, appeals and 2nd chances.

Reliance purchases the crude which is not sweet crude, processes it and then sells it outside. Here, despite the international trade and fluctuating currency, if a private firm can make profit, why cant OMC ? OMC get the best crude available.

Only 22% of Indian Crude is produces in India, which is mostly sweet, rest is imported which is available at International rates. Prices of sweet crude are at a 10$ premium to sour. heavy crude.
Many of OMC refineries are old and have been designed to process sweet crude or a mixture of sweet & Heavy crudes. IOCLs Digboi refinery is more than 100 year old, BPCLs Mumbai refinery was commissioned in 1952. IOCLs Panipat refinery which was commissioned in 1998, however processes sour & heavy crudes.

1) How much diesel is used by cars ? How much by trucks ? How much by Railways ? Railways is not 100% electrified. Why not increase price of diesel for railways and bring it on market rate ?
Railway is relatively cheap despite the increase in all energy forms ? Why ?
Its again tax payers money gifted out to others.

Railways is charged same rate as all other customers. Railways transports over 50% of nations commodities, typically food grain & Coal. Charging higher rates to Railways particularly will again exert inflationary pressures. Railways are more efficient as they consume only1/3 of diesel required for moving 1ton of Cargo/ Kilometer.

Originally Posted by anujatwork

This has been done recently. While everyone stood up in arms because Diesel was hiked by Rs 5/lt, what went unnoticed was that the Govt reduced excise on Petrol by Rs 5/lt thus saving the customer from hike in price while giving up its share of revenue to compensate OMCs for the increased cost of petrol.

The price jugglery was revenue neutral so as to speak as Rs. 5.00/ Ltrs Excise reduced on petrol was shifted to Diesel at Rs. 1.46/ Ltr. Since Diesel consumption is much more than petrol this is revenue neutral. GOI will never do anything to reduce its revenue when Budget deficit is going to be an all time high and even more than planned for.

Happy Tootling.

[anujatwork]

Originally Posted by SR71A

The price jugglery was revenue neutral so as to speak as Rs. 5.00/ Ltrs Excise reduced on petrol was shifted to Diesel at Rs. 1.46/ Ltr. Since Diesel consumption is much more than petrol this is revenue neutral. GOI will never do anything to reduce its revenue when Budget deficit is going to be an all time high and even more than planned for.

You are right Govt wont forego revenue but the toggling of excise duty from Petrol to Diesel does restore some excise sanity between the two. While Petrol was earlier charged excise at something like Rs 14.5 or so, Diesel was charged at Rs 2.5 or so.

[aaggoswami]

Originally Posted by SR71A

1) Hike was required as we are paying much less than the international prices of Petroleum products. Keeping prices artificially less breeds profilgacy, and skewed consumption patterns as seen in our country.

2) OMCs are operating within the social conditions prevalent in India. which includes politically connected dealers, Reservations based on caste in dealer selection, control over all aspects of Retail outlet operations by ministry Babus. Under the circumstances, I would say Oil companies are delivering good results.

3) OMCs are not sick units by any definition.

4) Losses made by OMCs are not due to their operational inefficiencies but due to Govt control. Adani will not even dream of entering such a business. Salaries being paid to OMC employees is not higher than commensurate Government staff, let alone matching their counterparts in private sector with similar experience and qualifications.

5) Reliance is not selling Fuel in India not because of any political compulsion but because they choose not to. Reliance has set up 27 MMTPA refinery in Jamnagar to market Fuels in India, but when Govt started exercising control over Fuel pricing, they applied to GOI for a SEZ and EOU status, as it became much more lucrative to Export Fuel than sell in India. GOI has gone out of its way to grant SEZ and EOU status to their already commissioned and functioning refinery. They have set up another refinery next door of 33 MMTPA capacity which was SEZ and EOU since start.

6) OMCs try very hard to ensure top notch quality and correct quantity in the limitations we work in. Can you confidently say a Reliance/ Essar dealer gives correct quality & Quantity??. In an industry where there is huge arbitrage opportunity between petrol/ Diesel/ Kerosene prices, it is big headache to police the dealers/ transporters and the mafia inbetween.


7) No OMCs cannot have their own system for policing and punishing the errant dealer. It is dictated by Ministry of Petroleum & Natural Gas, in a process which is full of loopholes, appeals and 2nd chances.

8) Only 22% of Indian Crude is produces in India, which is mostly sweet, rest is imported which is available at International rates. Prices of sweet crude are at a 10$ premium to sour. heavy crude.
Many of OMC refineries are old and have been designed to process sweet crude or a mixture of sweet & Heavy crudes. IOCLs Digboi refinery is more than 100 year old, BPCLs Mumbai refinery was commissioned in 1952. IOCLs Panipat refinery which was commissioned in 1998, however processes sour & heavy crudes.


9) The price jugglery was revenue neutral so as to speak as Rs. 5.00/ Ltrs Excise reduced on petrol was shifted to Diesel at Rs. 1.46/ Ltr. Since Diesel consumption is much more than petrol this is revenue neutral. GOI will never do anything to reduce its revenue when Budget deficit is going to be an all time high and even more than planned for.

1) There are many things :
Are we having bonds ? If so, we are not paying international cost prevailing on day to day basis.

Is crude stocked ?
If yes, why are we charged higher amount for crude purchased at lower cost ?

At what price IOC purchased crude ?
Daily there are different rates for Crude, so how is the price adjusted ? In which currency are we paying ? If INR depreciates due to some internal problem, we end up paying higher amount, right ?

Much much more details are required before saying that we are paying less amount. And not to forget the taxes. Its ineffeciency of GOI that only 3% are paying DT and not others. Only because 3% are paying DT does not mean GOI can put up a lot of IDT on fuels and other commodities.

2) Social conditions can dictate a lot of things in India, so going by your logic, Sir, if inflation is higher, can a thief say "as per prevalent social conditions, I stole something "? This is another part of anarchy.

Going by your logic, can we say that Skoda is doing best under prevalent social conditions by not providing good A.S & S. ?
This is not an excuse that any OMC and GOI can give. They ought to have control and act in a responsible way such that end user is not cheated.


3) If not, why they are they not giving exact figures of all things ? Why are they not able to give quality ? Excuses for all might be available, but at the end of the day, what are they capable of giving is what matters. No quality, huge loss, high salaries, perks, etc. is simply not justified.


4) Again, lot more details are required as I had mention earlier. The only indicator that we can have is quality, which is certainly lacking. There are certain details which I have but cannot reveal on an open forum.

5) Reliance was initially not provided with Subsidy. Why ? That was the major reason they could not cope up. And by the time problem was at a lower level, credibility was lost. Just like the case of Fiat, Peugeot and Camay.


6) Their efforts should be visible in terms of results. This is a simple fact. If they cant, it means they dont want to. This is not the first time that issues have been raised against quality/quantity. If they feel its headache, it means they are not able to be operate, pointing to operational inefficiencies, they should search for somebody who is much better at management.

7) They why do they crib about loss ? Just go to GOI and tell them, why come public for a price rise ? Loopholes, again point out to one or other operational inefficiency, for which common man of this nation MUST NOT SUFFER. Otherwise, its near to anarchy.

8) Old refineries is not an excuse. There were times when OMC made profits, why no upgrades at that point of time ? RIL had big problem with sour crude, they never came cribbing, invested and repaired the thing, moved on. Salaries and perks can be provided, but not upgrades ? Here, both GOI and OMC are at fault IMO.

9) Pinpoints to DT and IDT. Get these two things right, reveal the purchase of crude, cost, and taxes per litre. Things will automatically get crystal clear.


-> At the end of the day, the tax payer has to pay IDT, DT and again pay for loss of OMC.

-> I am afraid that one day, GOI will vote in for open trading of energy, and we would be another case similar to Enron.

PS: As usual, this thread is a learning curve for me, I apologize if for any errors, but also would like to be corrected in case of any errors.

[SR71A]

Originally Posted by aaggoswami

1)

The pricing formula approved by Ministry of Petroleum is that Oil company can charge Import parity price for all Petroleum products. How Import parity is calculated has another formula, which is CIF (Inclusive of Cost, Insurance & Freight) rate of that product if it were notionally imported from Arabian Gulf, regardless of the actual source of import. OMCs refineries transfer all products to their respective Marketing arms at this rate. Marketing arms further sell the products to the market after adding various taxes & duties at Govt administered prices for MS, HSD, SKO & LPG. For other products Marketing arms add a markup based on various market factors such as availability, demand, import substitution etc.

Import parity price is in USD, and any currency fluctuations will affect the prices.

Since the prices are administered the question of charging lower/ higher than international does not arise. Yes for all other free traded products, crude as well as product stock is valued at today's prices, which is averaged and changed every 15 days or as and when required.

Oil is liquid Gold, do you ask a jeweler to sell Gold at lower rate as his stock is a old value ??

Import Parity price of HSD without taxes is around Rs. 50.00 per Ltr at Mumbai, without taxes. You may decide for yourself if you are paying less or more.

Yessir, we are living in anarchic times.

Quality & Quantity is always there. In case there is a specific complaint all OMCs have a toll free number and dedicated complains websites.

Reliance is a private sector refiner, who has risked his own capital in the business. As such they are operating both refineries on SEZ model on additional tax holidays. Do they need subsidies??

It is not NEAR ANARCHY sir, It is complete anarchy I would say, not only in OIl, but in all sectors.

Originally Posted by anujatwork

You are right Govt wont forego revenue but the toggling of excise duty from Petrol to Diesel does restore some excise sanity between the two. While Petrol was earlier charged excise at something like Rs 14.5 or so, Diesel was charged at Rs 2.5 or so.

Kindly refer to my post # 166 in this, where I have attached an Excel file giving details of the price break up of both Fuels at Bangalore. That should be of some info. to you.