Petrol price: Ex-Refinery eats up benefit

Petrol went dearer by another Rs15/ltr on May 1. A non-so-relevant minister was heard praising the move citing the lowest ever petrol price in dollar terms. True as it is, that petrol at 50 cents is lowest since at least 2008, it helps reminding that for the paying consumer it matters little to nothing.

The debate has mostly been around taxes and whether the government could have used this opportunity to beef up some taxes, instead of keeping the Petroleum Levy Rs6/ltr shy on the maximum allowed limit on petrol. That said, the PL on high speed diesel did go up to the maximum stretch Rs30/ltr – for the first time ever.

It was perhaps for days such as this where benchmark crude oil was seen trading in the teens, that the maximum PL of Rs30/ltr was provided for in the Finance Act. Even in terms of revenue impact, imposing PL to the fullest on HSD makes more sense, as HSD sales would not be as adversely affected as petrol’s.

Some have been asking petrol to be price at Rs30-35 per liter simply converting the crude oil price dollar price to liter and rupees. Only that there is a small process of refining the crude oil as crude does not refine itself into white oil for motor gasoline. At least not yet. But that is known to most. So now move on to the price itself.

The motor gasoline grade Arab gulf import parity price for the relevant period was $15.8 per barrel – that is less than half from last month. The ex-refinery price for motor gasoline went down by less than half. The differential between import parity and ex-refinery price in the last two months has gone up from an average Rs5-10 per liter to as high as Rs19.3 per liter.

Granted, there may be some fixed cost component in the ex-refinery pricing formula. But the steep unpresented rise does warrant some explanation. The differential between import parity price and ex-refinery price of Kerosene oil, for instance, is minimal – whereas that for motor gasoline is record high. It would not harm to also make the ex-refinery calculation public – so as to stop speculations and encourage transparency.