05/03/2023

Fuel Pricing Mechanism in India

BYB.RANJANI

05/03/2023

Crude oil Price In India1 Barrel crude oil price is $40.451 Dollar is 66.56 rupees.A barrel measures 159 litres. So

(40.45*66.56)/159 works out to 16.933 in Rupees per litre of crude oil.

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Petrol and Diesel Price In IndiaAs per Indian Oil Corp (IOC), the nation's

largest oil company, said.Petrol in Delhi will cost Rs 66.90 per

litre.A litre of diesel will cost Rs 49.72 per

litre,

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Why price differs between companies?Indian Oil Corporation,Hindustan Petroleum

and Bharat Petroleum are the Oil Marketing Companies(OMC) which import and market oil in India.

The price of oil these companies quote in India is the price quoted on the Singapore Exchange.

So the price these companies quote is not the actual cost of oil in India. It is rather the price of oil in Singapore.

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• 1974-1998: Administrative price mechanism

• 1998-2006: Import Parity Price Mechanism

• 2006-Present: Trade Parity Price Mechanism

Evolution of Pricing System in India

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Administered Price Mechanism (APM)It is involved artificial price fixing by

the government from time to time and hike or reduction in the prices become a political decision, rather than being a rational economic decision.

The price is determined by the market forces of demand and supply.

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Import Parity Price (IPP)1. Free on Board Price (FOB) as quoted in Arab Gulf

Market and reported by Platt and Argus,2. Premium/ discount as published in Platt and Argus3. Ocean freight from mid port in the Arab Gulf to

Indian Ports4. Insurance5. Exchange rate6. Custom Duty7. Ocean Loss8. Wharfage and Port charges.

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Export Parity Price (EPP)Represents the price which oil companies

would realize on export of petroleum products.

This includes FOB price + Advance License benefit or ALB for duty free import of crude oil pursuant to export of refined products. Consequent to abolition of Customs Duty of Crude oil effective 25.06.2011, the ALB is currently zero.

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Trade Parity Price (TPP)TPP consists of 80% of Import Parity Price and 20% of Export Parity Price.

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Thank You