Dear Mr Daniel, The followin g writeup published in the Bussiness line, may perhaps , answer your QUERRY
BL Research Bureau:
The sharp increase in the price of petrol and diesel since June 16, when ‘dynamic’ daily pricing for these fuels was introduced, has caused much angst, forcing an explanation out of the Oil Minister on Wednesday.
The price of petrol sold by Indian Oil in Delhi has gone up from ₹65.48 on June 16 to ₹70.38 a litre on September 13 – an increase of 7.5 per cent. The price of diesel in Delhi has gone up from ₹54.49 a litre on June 16 to ₹58.72 – an increase of 7.8 per cent. The story is similar in other cities too.
Is the price increase justified or are the oil marketing companies using the too-little-to-be-observed daily price changes to line their pockets?
Prima facie, the price increases seem justified. Between June 16 and September 13, the cost of crude oil (Indian basket) has risen nearly 10 per cent – from about $48.4 a barrel to $53 a barrel. In rupee terms, the cost of the Indian crude oil basket has risen a lower 9 per cent; this is thanks to the 0.5 per cent appreciation of the rupee from 64.4 a dollar on June 16 to 64.1 a dollar on September 13. So, going by this, the price increase in petrol and diesel has been lower than the price increase in crude oil.
But this does not tell the whole story. That’s because the price of petrol and diesel in the country are not determined by the actual costs incurred on crude oil sourcing, refining and marketing.
Parity prices
Rather, a formula — trade parity price (TPP) — is the starting point for pricing these products. TPP is the weighted average of import parity price (IPP) and export parity price (EPP) with weights of 80 and 20 respectively.
IPP is the price importers would pay in case of actual import of the product at Indian ports, while EPP is the price oil companies would realise on export of the product. In short, the pricing assumes that 80 per cent of the petrol and diesel is imported and 20 per cent is exported. The IPP includes costs such as free-on-board price, ocean freight, insurance, customs duties and port dues. EPP that accounts for the assumed 20 per cent exports considers free-on-board price. Essentially, the TPP is determined based on prices for these products prevailing in the international market.
The TPP which is quoted in dollars is converted to rupees. To this is added the cost of inland freight, marketing costs and margins charged by the oil companies, the dealer commission and finally the heavy taxes levied by the Central and State governments.
Rupee vs dollar
On June 16, the TPP of petrol was $60.87 a barrel and this went up to $65.48 a barrel on September 13 – that’s an increase of 7.6 per cent. The rupee appreciated about 0.5 per cent in this period, and taxes, while high, remain unchanged – excise duty remained at ₹21.48 a litre of petrol while value added tax (VAT) in Delhi stayed at 27 per cent.
In short, the 7.5 per cent rise in the price of petrol in Delhi between June 16 and September 13 is almost the same as the 7.6 per cent rise in the product’s TPP during this period. Similar, is the case of diesel. While this seems fine, problems still remain.
Not so transparent
One, the dynamic daily pricing is not quite the transparent mechanism it is claimed to be.
Consider this. From June 16 to June 30, the TPP of petrol remained at $60.87 a barrel and the rupee traded the same at 64.42 a dollar, as per Indian Oil price build-up calculations. Likewise, for the entire month of July, the TPP of petrol was $56.27 a barrel and the rupee was at 64.46 a dollar.
For half of August, the TPP was $60.11 a barrel while for the other half, it was at $64.62 a barrel. And in September so far, the TPP is $65.48 a barrel.
When the pricing is being done daily, how is it that the TPP and the value of the rupee, and by extension the refinery transfer price, remain constant for extended periods?
Rather than showing the daily changes in the TPP and the rupee values, the oil companies are adjusting price differences in the daily prices charged to dealers. This gives the impression that the amount is going unfairly into the oil companies’ coffers.
The oil companies will do well to be show the correct TPP and the rupee values to dispel doubts.
(This article was published on September 13, 2017)
Post Comment
Related more
BL Research Bureau:
The sharp increase in the price of petrol and diesel since June 16, when ‘dynamic’ daily pricing for these fuels was introduced, has caused much angst, forcing an explanation out of the Oil Minister on Wednesday.
The price of petrol sold by Indian Oil in Delhi has gone up from ₹65.48 on June 16 to ₹70.38 a litre on September 13 – an increase of 7.5 per cent. The price of diesel in Delhi has gone up from ₹54.49 a litre on June 16 to ₹58.72 – an increase of 7.8 per cent. The story is similar in other cities too.
Is the price increase justified or are the oil marketing companies using the too-little-to-be-observed daily price changes to line their pockets?
Prima facie, the price increases seem justified. Between June 16 and September 13, the cost of crude oil (Indian basket) has risen nearly 10 per cent – from about $48.4 a barrel to $53 a barrel. In rupee terms, the cost of the Indian crude oil basket has risen a lower 9 per cent; this is thanks to the 0.5 per cent appreciation of the rupee from 64.4 a dollar on June 16 to 64.1 a dollar on September 13. So, going by this, the price increase in petrol and diesel has been lower than the price increase in crude oil.
But this does not tell the whole story. That’s because the price of petrol and diesel in the country are not determined by the actual costs incurred on crude oil sourcing, refining and marketing.
Parity prices
Rather, a formula — trade parity price (TPP) — is the starting point for pricing these products. TPP is the weighted average of import parity price (IPP) and export parity price (EPP) with weights of 80 and 20 respectively.
IPP is the price importers would pay in case of actual import of the product at Indian ports, while EPP is the price oil companies would realise on export of the product. In short, the pricing assumes that 80 per cent of the petrol and diesel is imported and 20 per cent is exported. The IPP includes costs such as free-on-board price, ocean freight, insurance, customs duties and port dues. EPP that accounts for the assumed 20 per cent exports considers free-on-board price. Essentially, the TPP is determined based on prices for these products prevailing in the international market.
The TPP which is quoted in dollars is converted to rupees. To this is added the cost of inland freight, marketing costs and margins charged by the oil companies, the dealer commission and finally the heavy taxes levied by the Central and State governments.
Rupee vs dollar
On June 16, the TPP of petrol was $60.87 a barrel and this went up to $65.48 a barrel on September 13 – that’s an increase of 7.6 per cent. The rupee appreciated about 0.5 per cent in this period, and taxes, while high, remain unchanged – excise duty remained at ₹21.48 a litre of petrol while value added tax (VAT) in Delhi stayed at 27 per cent.
In short, the 7.5 per cent rise in the price of petrol in Delhi between June 16 and September 13 is almost the same as the 7.6 per cent rise in the product’s TPP during this period. Similar, is the case of diesel. While this seems fine, problems still remain.
Not so transparent
One, the dynamic daily pricing is not quite the transparent mechanism it is claimed to be.
Consider this. From June 16 to June 30, the TPP of petrol remained at $60.87 a barrel and the rupee traded the same at 64.42 a dollar, as per Indian Oil price build-up calculations. Likewise, for the entire month of July, the TPP of petrol was $56.27 a barrel and the rupee was at 64.46 a dollar.
For half of August, the TPP was $60.11 a barrel while for the other half, it was at $64.62 a barrel. And in September so far, the TPP is $65.48 a barrel.
When the pricing is being done daily, how is it that the TPP and the value of the rupee, and by extension the refinery transfer price, remain constant for extended periods?
Rather than showing the daily changes in the TPP and the rupee values, the oil companies are adjusting price differences in the daily prices charged to dealers. This gives the impression that the amount is going unfairly into the oil companies’ coffers.
The oil companies will do well to be show the correct TPP and the rupee values to dispel doubts.
(This article was published on September 13, 2017)
Post Comment
Related more
Viewed by 1085
View all 19 comments Below 19 comments
[ ]( # ) [ ]( # )  [ ]( http://r.sigma-institute.website/mk/cl/f/sWZI-ZXKLx8uobGOaRouZLHk_rwd8DZLP2DhQba0ACw7CWmYjs7IRrefNiUZF77beD5HCpRozIqCZ36yVOSw6_sjcDO6VUepnNx3-90vunYdRk7T_JVnIfz8JmXA-Fw7aZ8WyeAey3S6ajhcjC2pEY5Rp_PRqepwDJOZBIraichy-RvXtqoN46JLzrZMerx-EWwgqB2QnCCjAyVc5Ok8Ov4iV9iKZJllyAqdH4teZQGVNXMLWajQgVUYNj5ieoeZEa1_zzoJvUtN7LGP16OXNiK1qaCwZGRQuQ7Z7c4qrVFsoJuVQgygjh42c_brXAMdQlvBj-4FXohJzxXcgBWW2fN6obYlX-tqwvUoVaZQ8y9jB6C4Ng )  [ ]( # ) COMPUTER FOR ONLINE CLASSES [ ]( # ) [ ]( http://r.sigma-institute.website/mk/cl/f/POp9ot2vMLtldaCs-lifKbKupklB9IniD20viD02szpB_DPFGfjKgBpMcSlaMfvlMn9w8kr6g3Moso9WfLzkvzHWfVs9GF-P5HhEU8hFHgzI_ACsDKYr3VTac6ggqh37yFHxaVPP_ngdQcJfS9VJSSjLFxZXvD5c9dvM2eNhbFS-2EJvxmdIz5vTuIXeqQjcbOTX-nOJGADj6-gH94Ujy40QM6VLmqbr82TI6htQkvZYcxGwa3s2MIYEFtVdbmtBos3XpjWR52xgGGQuY_QiTt9S2r-8cavIPVtBgF3eP9RWoUdxJxDfEHsbAQxQdo4n_6R3bCLLHL_3F3_ejzS2Bfhqo73b-pTgpsO3PGdvl0PUUntaOA ) [ ]( # )  For online classes we are providing a complete set of computer with UPS in following specifications: Monitor 15"; Camera & headphone CPU: 160 GB HDD, 2 GB RAM, Core 2 duo Keyboard, mouse UPS ( Electronic voltage stabilizer ) This complete set we offer pan India for Rs. 21000/- ( All inclusive ) One extra 160 GB Hard disk will be supplied free of cost within 5 years, if present becomes in sufficient. All carry "M.I.'s" 1 year warranty.    [ ]( # ) [ ]( http://r.sigma-institute.website/mk/cl/f/_C1YpWNNr1ONSmufwCzZ5_l2VfEW34S6PdGYSH2vzFv6-ORwMLCqsRjHEVG_8qhpE0JPPEojfU-L4JkhXnU1JnEGbPkJkREMKFVNn6LxmG3616kx789C91h1pB_XTTkbHcnzM2moCevwQRH1sytIJh3SmEwirGnnuNe0fcUGj6yzaO6qSMjA4N2nEm9YZs8SuQvhx-RV3v845h4f_gLzVYTKq73FGSebf2H9HAlcN7vTgJJlAj28HWdxaCmIlbwdOY6zN5qb9hPsVUL2h06th3aM6hZsk6twvrEHu4sNP7iID9387S4EppDKYjddq27BXd89Xgr9KTtVn3cGrOQL9T0WQgsEAlonAbjrRJknO6MrwpzKmQ ) We understand the hardships...  Hardships of the parents, hardships of teachers, hardships of every such individual who is now compelled to work from home; be it student or the the professional now computer set is must. we decided to help all such people by providing the complete set including UPS to save your machine for longer life. In comparison to laptops desktop is robust & long lasting and also cheap & best ! For getting this deal, please click the button below:  [ Button ]( http://r.sigma-institute.website/mk/cl/f/OCWsD2iN_yy3Y2HDw6LbXlmvApmJqayaYCrdN8X9F7Ci9T8LSobwRQ4bukHxiSVXvLLOWh3LRZBX10ERjxL8FBOeJ4ipe-aO64COonp3xXLZcm9iYJLqgdkpLnKyK9vE8y1OR6AP-SOOaIrqO5cCU3u8wR8SjM-ILNaHVMEGqFe8V6ohQDaXRyextOQQ7SdEDFNNyFLw6q9S3YPQgytaCbdUtY1MChM-LzPB54_ZB-LdKI8NUjStyiXBz9o7ZxQP6DC03y6T8-HXW_Znmyi-oMo_x-Tyq4XEOC4FcT9CqJRqqp1PazTKqwdclrQpeamUj0S4p5-r1oI0Xha9qw-VywOXSfVDZ9Tb_Yls_WxZcQSdm5FEaQ ) [ ]( # ) [ ]( # )  SIGMA INSTITUTE Delhi Cell: 9899075161 [ ]( http://r.sigma-institute.website/mk/cl/f/Ci384gG5yne9Daz0A5vWcaThFH-tvGH1lqR6ZsTsWObHaVQMmbfhsifVFZqvdG0RIyt1jq4pBVDTKfIp9407Frx_odSe8LZWEPB2Cv_RtKZCEWGIz-XpSazwAhRp3KcB5lEBnc1if83TR2hJUxIKcd_nPA4ZPu1VduXYJptap9FGnGmuKf-f7AreP9wpW6Al3Sync8LdSrj0XyD2gjWPJC2KjjVnFa6K9XgdbIz1By5RYfMwej7ogVa9VieXURtl-C-wgvDlXVG2caPiFA3UOEA3wUexehU1UUfXBi4IKbAv6tCjE7ZxjgjT5htXZw4z7E_2qBDT0sremnuz7qCriwSbXvfR3g ) [ ]( http://r.sigma-institute.website/mk/cl/f/JwhDN4fVWCe26AyKcjopLQLxQq3onAtCNCmUehMMW9vUYcBG2K1cDz_kYo4EX0uIBbihN_EDZiwCzJSNHEG3SaXZdiEP_nzFc955nRsRKvqEvO8BjHD7yDIO1t3uoSXrNK8q_yWHvurQ-Bx4rUL09acL9oBYt_HOLsvdMiJ-W8cUkurExddYn7TFcIE8GSZk8pYvG1JEi3Qkjp8Qm_CvD45BxRiVmFZ-LYOKX8nJQE5VJuA7HjgaCM1NbP0fvnskwhvAI30A9U6t3uTxu4bLmpKWEbW3HBVXSBi4y_2YNsiG0HE3QJvcnIoINPOm76ULcqX6lJviPlDLiq-6XT96hbikrw ) [ ]( http://r.sigma-institute.website/mk/cl/f/c_S2j58pWg3Ubs0Oogyb3oQMSvfo-1Inv8rL5rfkyoO4qk8Ze7130gvzphihAVVfkWx8jrfQxAw5DSiYksszbTYWXK8xctobtDo-qSEP_saBUlLNWvS1J5uFr9bTlv_LVuGGcSMLmyM8QdsyF8YrLE6o5m7Pulnh_NHFOEeIdl858PCTjLuJ_PSUR_VJ2-MhLW-IWf3NZoZyYrB7-U8kuU1GO0gyFzgblkUdNQhaty0Du4zbN-a4y7t2lIwVYln13gkdAtRKRVrJDpAUPAZ9SDYqURuADEAB_QOU4In1GTAT1DjrzstHRceYkSJAkAYrQqYea1WBxNTQevNdwdL3G6A ) [ ]( http://r.sigma-institute.website/mk/cl/f/PCCQv9Avv8Tnbw-Knvjmvx16STM7vPB4ngGBgt9jGRIqlMXa7121zOD0jibexfZrAVuoi7oCmE6Pla0pD4KEjI3Yq1KhFW1M8n218ZBT4Lq0Xoin15lDzfkavi3r9M1hOXX6LoUPVKCT4UQwOcrHDLW-0sbKw2URwBuR5qwffSEjJaXwxtssl2kEmLoKDXoeJsme_vhAHH8zRxaiAHahBNoFQPnL0ULFxXugQDlcWs9PsU3Ueqmo-cMV3wL8bOCgeMheuQWKrQ3vBhzyHNKpY4SmwxZzgEXPR5g8xPcXLDUQTksjYLckJy6iu1NTpNTh9eKLNs6o83S813MNm3dSRVJeZ0issV2Q8YLa76Q ) [ ]( http://r.sigma-institute.website/mk/cl/f/2S3d5R-PRyFvkZpnLe70Z8JhDTfvhuYMRzu9fZ45ryeqm_QI0xSsMhEUqYjkJsHbeXDvqPKJABVM84bFe5_XNhr3vKjDBPmbbSfeaejw4Ks_g5BcyzNqBIGo6IEQT-greeRJ3NoMcVqJmHpscFn8Wcvp1rr84UAaYrSxs-GmdCcFxI9LK93KXmL13zuNtoGOL3jS8Xgbnqqv1JNi9l8cKd64oPyiJtGyzvNPRaRT1fmfL0iwszK1gSig8WVea585rvEzSfRZcLUAk7JHe9gjI67GivcMPho8tnekbZb435hCIl1ST0B6gATW_VfdbYcwHEDHHttTCooB-pmSILQ0wjmRZmcchQ ) [ ]( http://r.sigma-institute.website/mk/cl/f/wkW7IFfm6qtkZgxNEjK4Gw73D_OThsF8Jp8UMABlpLabiYN1GHFfZ5w8tGU2ra65xMoTanMLNSrgL0rA3IbiDqLIH8EUgQYZiRx7YnHuBhDuWAe6H_ohDtvfgrPTvZ8FZib6TTD9ts6_ra70D4R0onMXHsfS52KFPP0VoQv_dKPSYiexSbYlNq6UTDa80YQg69wZ_e0Jt7rQn6u0D8BTa5tLx04bGsMd32btzht9O4E7lBbyWfIWEzgn9KsA8c1F32T0LqS6dexwfiRZRsJL7Hok9vYCu1BgeZxnwBXBgsh2TKjvavzKFdsm4SrgBX_or10y7Eu5IhBXEhR7wnEQxfjmjPw7J0UFeNC1ek7wC9Bw_sox6MNf7rnxlI0EVJ7K7tUwWGe9KB3xF0-VC24 ) [ ]( http://r.sigma-institute.website/mk/cl/f/4UggE1J24yz_EHRl69U7ztu5F2chBix2EzingpeN6XeCwcd_25zMlssHhSYcPRueO5SKLN0lbD19LJjDkE5QSc7MuDFjxMJATAoTPBtBbCiqq1YFC1eviXLvZd1Xcx4Jc0vA_CKbfnpo3vWm0ahayBqGftdsytBO9E192QyNhX7ze4TYvjEblEswiyQLxJLbwgqhx4KkbKzOUzwUHeQ29XKjRKyPKf_t0ahZ4wOhJ2H1nRRN7Db6BkDJZ-hBedIF2tXDGEmyIFLEwg-cQHHlruOI_H6CqMIvwxbQ9gwNSJ88rMpdABQy8QZPZ9sAoVZtw6k0LDJpe3P_ukMTkeC-OIk0qdH9YHN5pbCkERfN ) [ ]( http://r.sigma-institute.website/mk/cl/f/khCUPvFVI2vdDYam6Ef_Krxx2_1wkWJmY9Q1wqZTrGf60AKFrJ0rZBokyYLJd_PuWDa0obv---L86CiWzLEpZqLwD_7wT4zBsYXoskpgMQLN4lfhvuVT-5yl4nascBNcARA-x_fGNPX8NEKsDJF_hqh84L1R9QYlxLPxwHI8wYLFd6W8USY6BXvFUjeSjQC0sENXNQMQWNiAFtV5M33erTVWuEMSJkXNL8o4xorkvUd9ov414EK2acojPQ5zPsqUTaaJpi_TqUPVqMe2WqFW8HDF2Gjm8qAtFkCx58o6wjhcqjYKj0QfLTBN5YVvChi1klB_2UFdZGOg6DS78fTYQY9g5yLFg_a-X1_I )  [ ]( # )  You received this email because you are registered with Sigma Institute  [ Unsubscribe here ]( http://r.sigma-institute.website/mk/un/S3ChqmZnpLLQMkg2aJ1VbN0xco_5kmAQuIdA6v4vW4HxzJgGrNlHMpEopvIRNjBv8S-Tm_5r99HRj3WGgyzN0KeREVgkAPPrHGlXb11lin8yE3lJWDiMSSV3PS1FlHAQnxs5FFRUeqltXSnFLxuyJDzemO_u2fMERhwH7Dd7rx9ttkGWN73WT5LhEI2CtPuQgQWQaRpX4XGdpKcpLtJamWui4y4 )  [ ]( # )  © 2020 Sigma Institute  more
Oct 31
It is a dark picture . The explanation given by Mr Krishnan Raman is good but please tell me sir why the Petrol price is cheaper in other countries ? more
Sep 19
The fuel pricing is finally freed of subsidy, something that should have been done decades ago. Wasting poor peoples money on fuel for the rich is not good governance. The temporary fuel cost rise is due to Hurricanes in America (several refineries where shut, so demand went up). But, it will stabilise. The Kangress and Communist state governments refused to include fuel under GST. VAT has been insanely increased in Delhi and Kerala recently. All this leads to fuel price rise, and Central govt has no control on all this. Going back to subsidy is the worst thing they can do now. Good for vote catching, but terrible for good governance. more
Sep 15
Petrol was never subsidized. Only diesel was subsidized since the vehicles used for transporting essentials like vegetables and grains run on diesel and high prices of diesel would impact the prices of these essentials which would in turn impact life of common poor man. more
Sep 15
Why is fuel not covered under GST? Isn't that one of the reasons for higher selling price of fuel? more
Sep 15
