How petrol can be sell at Rs 50/lt and deisel at Rs 37/lt ?
Ravi Srivastava | 06 Aug 2013

There is a need for complete over haul of pricing of fuels which are the backbone of economy and a major cause of spiraling Inflation across the board. Government is fooling the public at large by a show of being pro-poor, pricing Kerosene @14/litre and padding up the price of petrol @Rs. 79/litre. For this pricing several excuses are kept handy like rupee has depreciated, under recoveries have gone up, international crude prices are high etc.

The pricing of Petroleum Products is the biggest fraud played by the Government, Ministry of Petroleum & Natural Gas (MOP&NG) on the public of this nation. The deliberate opaque pricing  which is known as Market determined Pricing mechanism or (MDPM) has been reduced to Minister Determined pricing Mechanism and conceals the inefficiency of Oil Marketing Companies(OMCs, corruption, exorbitant project cost overruns and distorted supply chain mechanism & logistics.

Whenever fuel prices are revised these excuses are parroted by the chairman of various oil companies on TV channels. Of late, government has arbitrarily and shamelessly decided to revise the price of petrol every fortnight under the pretext that it is 'decontrolled' and diesel every month by 50-75 paise. Both the motor fuels have gone up by more than Rs. 9 & 16 per litre respectively in the last one year itself. Since there is no transparency,the helpless consumers continue to get squeezed every month. In spite of so many reforms especially in fuel pricing, India is at the brink of getting 'Junk’ grade. This is despite stable crude price in last year with declining trends.

Nobody in the oil Ministry could explain how petrol was sold for Rs 55/litre in June 2008 when crude had touched 147 USD /bbl. NCEAR (National council of Economic applied Research) had established in their report in 2006 stated that 40% of Kerosene(priced @Rs13/litre which is less than the price of bottled water)  is siphoned off from for mixing in petrol & diesel. This happens before kerosene reaches ration shops and this adulteration scam is worth Rs. 15000 crore per annum. This “booty” is shared by OMC Sales officers with the Minister/Ministry of Petroleum Babus.

The joke is that the Government pretended to be serious about curbing adulteration and sunk Rs. 250cr in 2006-08 by introducing a “Marker System”. The scam in the marker system was unearthed by this writer for which he was sacked from a Top ranked Govt. owned oil Company.This did not result in containing adulteration even by 0.01% which goes on unabated till date. Despite tall claims by 3 Ex Oil Ministers to introduce a New marker system, it is nowhere in sight even after 5 years.

As a matter of fact the ministry has no intention to curb Adulteration in Oil industry.The “Moolah” is channelized by Directors of oil PSUs for buying the position of Chairman, in a manner similar to the one used by Mahesh Kumar of Western Railway. Another myth is regarding 'Import Parity Price' or IPP which determines Refinery transfer Price (RTP) from respective Refinery to OMCs. Where is the need for IPP? All Private refiners like RIL, ESSAR and some small refiners are exporting their entire product which is somewhere in the range of 60 MMT every year. How do we know the factors affecting costs of foreign Refiners, and that such costs are not being padded up?

How do we know that we are not a victim of cartel or syndicate of multinational exporters? All under recoveries or so called losses are calculated on the basis of IPP. The pricing can be based on ‘Export Parity Price’ instead of IPP,which is logical. It will impact Petrol pricing and reduce it. The worst part is that the nation is progressively screwed by the oil behemoth named ONGC. This company is the biggest liability on national exchequer. Sometime in 1988, ONGC used to explore 26MMT of crude oil which was nearly half of our consumption of 55MMT.

Over a span of quarter century, ONGC’s production has slipped to only 23MMT despite pumping lakhs of crore in the mother earth for improving exploration. This seems to be deliberate attempt by Shastri Bhawan mandarins to help RIL, British Gas or gross inefficiency on the part of ONGC. This was vindicated by Present Minister (the 4thMOPNG minister in UPA-2), Shri Moily when he said that there are cartels and syndicates which ‘blackmail’ the government not to reduce its dependence on imported oil. The consequences for the country are fatal. Now, domestic consumption of petroleum products is approx. 150MMT and ONGC+OIL+ONGC Videsh jointly contribute only 16% of total requirement. The balance 84% crude is imported which is subject to dollar fluctuation. It makes the nation bleed of foreign currency.

Instead of glorifying these upstream OIL PSUs their boards should be sacked forth with and replaced by competent professionals. Let’stalk about taxes on petroleum products. You must have heard about the IITian CM of Goa who did away with the sales taxon petrol and is able to sell it for around Rs 55/litre. The phrase 'Government has no business to be in Business’ must be applied here. States are literally profiteering by Sales Tax. State should earn reasonable revenue for welfare & development of its people. Sales tax on Petrol varies from VAT 12.5% to 32%in some states, which only help fill their coffers without any accountability. Every increase of Rs1/litre makes it 1.40 for the end consumer courtesy the taxes & cess.

For several years a Road cess of Rs 1per litre was imposed and the collection ran into several thousand crores. No account is available for how many kilometres of Road is constructed with such money or has it been quietly consumed for balancing fiscal deficit. Infact, the Refining cost of all 3 Petroleum products e.g petrol, diesel, kerosene is Rs. 35/litre. Government artificially sells kerosene @ Rs. 13/litre and claims to recover deficit by charging premium on Petrol/diesel. This is nothing but hoodwinking the public.

The government has not come out with any credible data as to how much of subsidy on PDS (Public Distribution System) could be saved by Adhaar card based Direct Transfers and converting lakhs of Kerosene users to LPG/Piped gas customers.The entire subsidy mechanism is an eye wash to cover up the inefficiencies of OMCs. In fact Ministry & OMCs are hand in gloves in this extortion of public for last 6 decades. A macro analysis of OMC’s Project cost would reveal volumes about their inefficiencies. One of the OMCs constructed a Green Field joint venture Refinery in Bhatinda, Punjab in 13 years.

After 3 stone laying ceremonies by respective Governments, project cost envisaged at Rs. 9000 crores ballooned to an expenditure of Rs. 16000 crs. Mittals who were partners in this refinery are looking for an escape from this monumental blunder. Another refinery on East coast Paradeep by another OMC is being constructed since last 10 years with completion nowhere in sight. Another Rs.19 crores of expenditure by one of the OMC’s Delhi coordination office on Minister, Ministry and Parliamentarians is being investigated. One OMC spent about 40 Lakhs for farewell of its Retiring HR Director in a 5 star Hotel in Goa for its entire HR Team.

Such wasteful expenditures which run into several hundred crores are concealed and account books are fudged . The logistics are just horrible. Petrol/diesel prices vary to the extent of Rs4/litre in the same district within a distance of 5-10 Kilometres. It is totally lopsided, irrational and only shifts volumes from one point to another.If Government is losing money on selling petrol/diesel why should there be a competition for selling more? All 3 OMCs mindlessly compete with each other by announcing schemes.

There is no supply management in motor fuel retailing. It is only demand Management. Majority of the 42000 retail outlets across the country are not able to sell more than 100KL /month which does not cover even  administrative costs for running the petrol pump (by way of dealer commissions). Most of them resort to adulteration and short delivery to make up margins and profit. In such a scenario, where is the need for opening new retail outlets. In urban areas, the value of and has grown exponentially and selling the land has become more lucrative then selling motor fuels.

The one time favourite business of politicians of owning petrol pumps has now largely shifted to the hands of their managers who are running it as “benami”owners Arbitrary,opaque pricing of diesel has fuelled Inflation and is clearly reflected in the prices of food products, fruits, perishables and other consumables. We hold no brief for fuel guzzlers of Merc, Audi, or BMWs who can afford to fill tanks even @150/litre but worst sufferers are students, small businessmen who use bikes/ scooty, service class people, auto rickshaws while potholed roads further increase fuel consumption.

Another leakage of subsidy is the black marketing of  domestic cylinders, which can be easily seen on every nook and corner of the city with roadside tea stall, ready to eat snack vendors and even with gas cutters and fabricators. There are lakhs of “Benami” Gas connections and multiple connections in households. Despite several Newspaper advertisements, such connections do exist and huge amount of subsidy is drained while domestic cylinders find their way to the open market. This can be easily checked by RFID stickers or Aadhaar based transfers. Production of LPG in the country is stagnant for last 8 years and demand is bridged by imports.

Conclusions that if subsidy leakages are checked, fuel pricing is made transparent, kerosene price is rationalized, project costs controlled, then essential fuels like petrol and diesel can be sold for Rs50/litre and Rs.37/litre respectively. A domestic cylinder can be delivered for Rs. 350 per cylinder and still OMCs will be reasonably profitable. The need of the hour is a strong political will, transparency and intent to clean the corrupt system.

(About the Author: Ravi Srivastava is a former oil company official, energy expert and a political activist)