The government may review the existing auto fuel pricing regime as state-run oil marketers have stopped daily changes in pump rates since April 7, even as the average daily international petrol price plunged by more than 17% and diesel by over 14% in the first fortnight of July compared to their average rates in June, three people aware of the development said.
Indian oil companies have seen a sharp decline in the daily average prices of crude oil, petrol and diesel in July after they peaked in June, official data show. As per the existing policy, oil marketers should have reduced pump prices of petrol and diesel this month, but they might be recovering past revenue losses because they did not raise auto fuel rates when international oil prices spiked earlier, the persons said, requesting anonymity.
India’s daily average cost of crude oil import dropped by 9% to $105.72 per barrel in the first 15 days of July. Its benchmark average petrol price plunged by 17.02% to $123.49 per barrel and diesel price fell sharply by 14.2% to $146.67 a barrel, according to the data. The daily average prices of benchmark crude oil, petrol and diesel in June were $116.01, $148.82, and $170.92 per barrel, respectively.
“As oil marketing companies are unable to effect daily changes in petrol and diesel prices because of various political and economic reasons (general elections, assembly polls and rising inflation), the relevance of the daily pricing system is in question,” said one of the persons working in an economic ministry. “The government may review it to find a suitable mechanism for the country.”
In order to reform domestic fuel marketing, the previous United Progressive Alliance government deregulated petrol prices on June 26, 2010, and the current National Democratic Alliance government freed diesel rates from its control four years later on October 19, 2014.
State-run oil marketers implemented daily revision of petrol and diesel prices in their pumps across the country on June 16, 2017, to bring more transparency and efficiency in pricing to benefit consumers, a second official working in the oil ministry said.
Emailed queries sent to Indian Oil, Bharat Petroleum and Hindustan Petroleum did not elicit any response. The three state-run companies enjoy a virtual monopoly in domestic fuel retail and dictate petrol and diesel rates. The petroleum ministry, the finance ministry, the Prime Minister’s Office and the principal director general in the Press Information Bureau did not respond to emailed queries on this matter.
State-run retailers have paused daily changes in petrol and diesel rates from April 7, 2022, under a tacit direction of the government to check rising inflation, a third person working in a refining company said.
Fuel prices for consumers declined on May 22 when the Union government sharply cut excise duty on petrol and diesel to provide relief and check rising inflation. Petrol retails at ₹96.72 per litre and Diesel at ₹89.62 a litre in Delhi.
Prices of other deregulated petroleum products such as aviation turbine fuel have been reduced by 2.18% to ₹138,147.93 per kilolitre from a peak of ₹141,232.87 because of a fall in international oil prices, the third person said.
“The government has no control over international oil prices, but it may fix some components of the current pricing regime,” said the first person cited earlier. “For example, when transportation of crude oil is already factored in basic prices of petrol and diesel, there is no logic to add freight and insurance costs in auto fuel that is produced domestically.”
The price of petrol and diesel in India is not determined by the actual costs incurred on crude oil sourcing and refining, but by trade parity pricing (TPP), said Gaurav Moda, partner and energy sector leader at EY India, a consultancy. It assumes that 80% of petrol and diesel is imported into India and 20% is exported, hence 80% of import parity price and 20% of export parity price builds up the TPP.
“In this TPP price computation, imports and freight on crude transportation and product sale is inclusive, averaged to refineries and nearby port location. However, this TPP or equivalent refinery transfer price (RTP) doesn’t include MS (petrol), HSD’s (diesel) storage, transportation and marketing cost to the dealers, and thereon to the end customers,” he said.
Experts said the government must ensure a transparent, consistent and sustainable fuel pricing regime. “There is a need for a sustained pricing policy for marketing of petrol and diesel for private sector companies, who made large investments to create retail infrastructure,” said SC Sharma, an energy expert and former officer on special duty at the erstwhile Planning Commission.
Moda said dynamic pricing is a major reform.
“This dynamic pricing not only allows competition, but it also benefits consumers and brings parity with international product prices. With deregulation in fuel retailing sector and in true spirit of marketing freedom, daily pricing is essential,” he said. “Daily pricing is essential to keep speculation in check.”
“While the government and the national oil companies may have a good intention to protect consumers from price volatility, the private sector, which has created a huge marketing infrastructure, gets highly impacted due to large underpricing of diesel and petrol for consumers,” Sharma said. “This also causes the private sector infrastructure to become redundant.”
There is a need for a level playing field to be provided for the sale of petrol and diesel to both private and public sector companies. “In a highly volatile and high oil price market, any static price mechanism adversely impacts both public-sector units and private companies,” he said.