New Delhi, Petrol and diesel prices can go up marginally by 50 paise and 20 paise respectively, if the government accepts a committee report on raising dealers’ commission. However, a more sharp increase will occur if the government pays heed to state-owned oil retailers’ plea to up prices.




The surge in global crude oil prices has created a yawning gap between costs and prices that has led to the retailers losing Rs 17 per litre on petrol and Rs 4 on every litre of diesel. Any government decision on allowing the oil companies to raise fuel prices is expected only after the assembly elections to five states are completed in May, sources said.



The oil ministry committee looking into dealer commission — the panel is headed by joint secretary (marketing) — has proposed an increase in commission of Rs 393 per kilo litre (kl) for petrol to Rs 1,611 from Rs 1,218 and Rs 170 per kl for diesel to Rs 927 from Rs 757.



The committee was set up in September following an agitation by the dealers. Threatening an indefinite strike, the dealers had demanded an immediate upward revision as well as a formula that will lead to an automatic revision in their commissions with any change in petrol and diesel prices. Subsequently, the commission was raised by Rs 93 per kl for petrol and Rs 84 per kl for diesel.



On the committee’s recommendation, Federation of All India Petroleum Traders president Ajay Bansal said that “this is a marginal hike. We have been demanding doubling of the commission in view of inflation and increase in other costs. We would soon meet the government to press for our demand”. The federation says it represents all the 38,700 petrol pump owners in the country.



The committee, which also comprises director (marketing) of IOC, BPCL and HPCL, rejected the dealers’ demand of 5 per cent commission on the total value of petrol and diesel sold. Accepting it would mean that the “dealer commission varies on account of changes in the taxation structure by the Centre or the state governments. This is not an acceptable way of computing dealer commission as taxes should not play a role in arriving at dealer commissions”.



The committee report said 90 per cent of the commission in petrol and 89 per cent in diesel went towards the reimbursement of various costs incurred in the running of retail outlets, including manpower, electricity, product loss compensation and working capital expenses.

http://www.bharatpetroleum.com/YourCorner/PetroDailyDetails.aspx?Pnewsid=P000032020

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This data is as on  20th July 2010

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No big bang deregulation, please, we are the UPA



With the three public sector oil retailers deciding to have a uniform price,

a cartel has been created. So where will competition go?

The Government has kept an escape clause so that it can intervene if crude oil prices rise sharply.

June not only saw the weather God play his little games, but also the Government. On the 25th, just after the Prime Minister left for Toronto for the G-20 meet, it announced the deregulation of petrol prices, but not of diesel. But like Banquo's Ghost, the question is still hanging in peoples' minds: Has the Government actually given the public sector oil marketing companies — Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation — complete freedom to decide retail prices?

Pricing benchmark

The three oil companies have decided to review the price on a monthly basis. But they have not fixed any dates, nor disclosed the mechanism for deriving the price. They say giving a date would lead to hoarding. As to the formula, patience, friends, we are working it out. Issues such as to which international market the pricing will be benchmarked needs to be decided. Typically, the benchmark could be Dubai, as most imports of high sulphur crude are based on Dubai pricing. However, there have been instances when Dubai price has been higher than in other markets. What does deregulation mean for competition and pricing? With growing competition in the retail sector, prices are eventually expected to soften on the retail front. However, with the three public sector oil retailers deciding to have a uniform price, a cartel has been created.

Competition issue

So where will competition go?


Private players such as Reliance Industries Ltd (RIL) and Essar are of the view that this price should not be lower than the export realization. And if the price is higher than the export price, the consumer has to bear the burden.

Whence the question: What will be the formula?

Private players which have adopted a wait-and-watch attitude also feel that any difference between them and the public sector should not be higher than 50 paise to Re 1 a litre. Besides, the Government has only deregulated petrol price, which accounts only for about 10 per cent of the petroleum products sold. Diesel, which accounts for more than one-third of the oil product consumption, is still under Government control. Though the public sector companies have decided to have a uniform pricing, the industry expects each to undertake activities to promote its products by offering sops or price incentives.

Pricing in India

On the question of how competitive the prices in India are vis-à-vis the neighbourhood, the Ministry has said that while petrol and diesel prices in India are broadly comparable with the neighbouring countries, the prices of PDS kerosene and domestic LPG in India are the lowest among the South Asian countries. Besides, the prices of petrol and diesel in Delhi are inclusive of the quality differential on account of superior Euro-IV/BS-IV fuels introduced with effect from April 1, 2010. Also, Delhi has reduced VAT rates on diesel, effective July 20, leading to a drop in retail prices by Rs 2.50 a litre.

Comparable levels

And on why a comparison is being made among South Asian countries and not with Europe and the US, the Ministry said the comparison of retail prices of PDS kerosene and domestic LPG have been made with our neighbours for the following reasons:

They form part of the same geographical region — the Asian sub-continent. They are not only socio-culturally of the same milieu, they are at comparable levels of economic development. All of them depend on oil imports for meeting their domestic energy requirements and are thus placed in a similar position. While deciding to deregulate the petrol prices, the Government has also kept an escape clause in hand so that it can intervene if crude prices rise sharply. But the definition of sharp is not clear and will perhaps depend on the proximity to major elections. The period of uncertainty still continues. The industry feels that not much clarity will emerge before December. Will the policymakers prove them wrong, we can, perhaps, wait and watch.

by….RICHA MISRA …from the pages of HINDU BUSINESS LINE NEWSPAPER.

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The government has called for a meeting of the three state-owned petroleum retailing companies on Thursday to decide on the mechanism of regularly revising petrol prices, Murli Deora, minister for petroleum and natural gas said.

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Deora, who was inaugurating a new scheme to provide consumers gas cylinder at the time of their choosing, said it was up to the companies to decide on the exact mechanism, including whether they should keep the prices in tandem with each or not.

The government had, two weeks ago, announced that it will no longer control the price of petrol, allowing private and state-owned companies to set their own prices and inviting widespread protests. It left the decision of how often the companies should raise the price to the companies themselves.

"It is up to them.. We are not deciding it," Deora said, when asked about the frequency of revisions.

While consultations have been going on amongst and between the three state-owned companies, which control around 95% of the market, and the two big private retailers, a consensus is yet to evolve about the pricing mechanism.

Officials are also worried about whether a joint price fixing will amount to collusion and cartelization, according to India's new competition laws. India's recently enacted Competition Act bans companies from consulting each other before fixing the price of their products.

Some oil marketing firms, especially the state-owned companies, are known to favor a centralized 'price fixing' to lessen the competition and prevent large scale migration of customers from public-sector to private retailers.

Private sector players, who have mega plans of winning over customers from the state-owned firms, are unlikely to join the 'pricing alliance'.

Petroleum secretary S Sundaresan also hinted that the companies may re-adjust their prices on Thursday, July 15, to keep them in line with international crude prices.

"We will have a view on the projection of price [in Thursday's meeting]," he said, reminding that prices may also go down, if international crude oil prices decline.

The petroleum ministry also unveiled a new scheme by the the three state-owned oil companies -- Indian Oil, Hindustan Petroleum and Bharat Petroleum -- for customers to request gas cylinders at a time of their own choosing. Depending on the time of delivery and the location, customers will have to pay Rs 20 to Rs 50 extra per cylinder for using the service.

Deora's deputy Jitin Prasada also said the ministry is in talks with the finance ministry on picking up the tab for a Rs 490 crore scheme to provide cheaper gas connection to 35 lakh lower income households in rural areas.

"The planning commission has already agreed to fund 50% of the cost.. We are trying to find out whether the finance ministry or oil marketing companies will pay the remaining," Prasada said.

The new scheme involves giving a rebate of Rs 1,400 per new gas connection to low income households, bringing down the cost of connection to around Rs 700-800.

Prasada, however, did not reveal whether the ministry has any plans to prevent the widespread practice by gas agencies of slapping on extra charges in the name of 'mandatory' purchase of gas stoves from the agency itself.
Source http://www.dnaindia.com/money/report_new-petrol-pricing-mechanism-on-thursday_1409230

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