Petrol price: daylight robbery?

Petrol prices went down by Rs15/ltr as part of the Covid-19 relief package. That the price change came a week before schedule, qualifies as a relief step. The Special Assistant on Petroleum Nadeem Babar had initially hinted that this was a result of a considerable reduction in Petroleum Levy. One was under the impression that the actual benefit of decline in global crude oil prices will follow on April 1, and this is a relief purely based on PL.

But there came Ogra’s own details. And the “sizeable” reduction in PL reads a paltry Rs2.59/ltr. Another Rs2/ltr have been slashed from the GST. The remaining price cut deals with actual reduction in global Arab Gulf Gasoline prices. This makes one wonders if the government actually passed on the benefit to the consumers or made more money out of the situation.

Some math would help. The relevant benchmark crude price for the period from February 27, 2020 to March 23, 2020 averaged $40.43 – or 35.2 percent lower month-on-month. The rupee did lose some value, but the change in rupees term was almost identical at 34.2 percent month-on-month at Rs39.9/ltr.

Now move to the base price for PSO, which is the cost of supply of the refined product. There is a 15.5 percent month-on-month reduction in base gasoline price. Surely, the crude oil undergoes refining process, hence the percentage change in crude and refined products will always vary.

But hold on here. Never in at least last four years, has the differential between crude and refined gasoline been this big. The average four-year ratio of base price to crude oil price is 1.08, with the highest value at 1.19 (see table). The ratio suddenly jumps to 1.4 for March 24 announcement. What have the refineries suddenly started to do? Why the sudden spike? What is the explanation there?

Had the ratio stayed 1.1 – the base price would be lower by another Rs12/ltr and the retail price by Rs14/ltr to Rs82/ltr. Nadeem Babar and Co. would do well to explain this price breakup. These are tough times, and criticism may seem out of place. But when you announce measures in the name of relief package, there should be transparency, which is clearly lacking here.