Intro: With the oil companies announcing their decision to introduce daily pricing of petrol and diesel, the time is at hand to know the intricacies of how the price of fuel is fixed.
What is dynamic fuel pricing?
Dynamic fuel pricing is the method of changing the fuel price on a daily basis in tandem with international rates. This means retailers will reset the price each day rather than wait a fortnight leading to lesser price fluctuation. State oil companies have planned to implement this method beginning five cities.
How is the price of fuel fixed currently?
At present, oil marketing companies (OMCs) revise fuel prices every fortnight—on the 1st and 15th of every month. The price is based on the average international price of fuel in the previous fortnight. With the dynamic fuel pricing mechanism taking effect, fuel retailers will be able to adjust prices without fearing political interference which often prevents price hikes during elections. Because the prices tend to remain low during polls, retailers are often allowed to hike prices even when crude prices fall internationally.
Which cities will see the dynamic fuel pricing?
Dynamic pricing mechanism will be initiated on a pilot basis in five cities including Visakhapatnam, Puducherry, Udaipur, Chandigarh and Jamshedpur from May 1. Following the consumer response, it will eventually be extended to other parts of the countries as well.
What does daily price variation mean for customers?
Sudden upward or downward price movements will be a thing of the past. Customers will not have to deal with volatile price changes every day. Instead of a sudden rise or fall in fuel prices by a few rupees once in a fortnight, prices will change by a few paise on a daily basis.
How may fuel retail outlets does India have?
India has over 56,000 fuel retail outlets including state-owned and private outlets.
FAQs
What taxes are charged on petrol and diesel?
A litre of petrol attracts an excise duty of Rs21.48 per litre while for diesel it is Rs17.33 per litre. The VAT for petrol stands at 27% on its basic price and for diesel it stands at 16.75% on the basic price along with a 25 paise cess.
Odisha
The state government charges VAT at 26 per cent on petrol and diesel which brings at least Rs 360 crore in revenues to the State. Odhisa generates close to Rs 3,500 crore tax revenues from petroleum products annually.
The State also levies Entry Tax at one per cent. No other local levy is imposed on petrol and diesel in the State and there is no local surcharge levied either.
Telangana
The state imposes a VAT on petrol at 35.2 per cent and on diesel at 27 percent. In addition Rs two is charged on every litre of petrol and diesel.
The 2017-18 budget estimate for sales, trade etc stands at Rs 46,499 crores of which 50 per cent revenue comes from petrol and diesel.
Andhra Pradesh
The Andhra Pradesh government levies 31 per cent local tax in addition to Rs 4 towards VAT on petrol.
It levies 22.22 per cent local tax in addition to Rs 4 towards VAT on diesel.
The government has earned revenues of Rs 8,979 crore towards taxes through sale of petrol and diesel for the fiscal 2016-17. In March itself, the government earned Rs 777 crore via taxes through sale of petrol and diesel.
The State government is yet to create a mechanism to monitor and implement the Centre's decision to change the fuel price on a daily basis.
Karnataka
The state government imposes a Value Added Tax of 30 per cent on petrol. There is an Entry Tax at five per cent and a dealers’ commission at Rs 2.5 per litre.
For Diesel the Value Added Tax stands at 19 per cent while the Entry Tax stands at five per cent. There is a dealers’ commission at Rs 1.6 per litre.
What is the issue with surcharge?
When a customer pays for his fuel using a credit or a debit card, a surcharge is deducted from his card for the payment. Petroleum minister Dharmendra Pradhan had stated that no surcharge will be levied for card payments made in petrol bunks. Despite this, media reports indicate customers are being charged for making card payments while buying fuel.
How much is the surcharge?
Banks usually charge one per cent on all credit card transactions and from 0.25% to one percent on all debit card transactions carried out at petrol bunks.
What are the two factors that influence the daily price of fuel?
International prices of crude and dollar-rupee exchange rates will decide how much you will have to shell out for fuel. Crude oil prices in turn are determined by factors like demand-supply dynamics, geopolitical disruptions and Organization of the Petroleum Exporting Countries (OPEC) decisions. The dollar-rupee exchange rates are determined by factors like capital inflows, interest rate decisions and fiscal policies.
Here’s how crude oil is classified
There are varieties of crude oil differing in the amount of sulphur content and density. A number of them are used as benchmark oils across the world. However, there are three varieties that are the most popular benchmarks:
1. Brent Crude: This sweet (low sulphur content) crude oil is extracted from four different fields in the North Sea region namely Brent, Forties, Oseberg and Ekofisk. The Brent crude is the most widely used marker or benchmark of crude oil across the world.
2. West Texas Intermediate: The oil produced and consumed in the United States is lighter (lower density) and sweeter than Brent. It is a blend of various US domestic streams of light sweet crude oils.
3. Dubai/Oman: This oil is heavier and has higher sulphur content. It is used as a main reference for Persian Gulf oil that is delivered to the Asian market. It is a basket product consisting of crude from Oman, Dubai or Abu Dhabi.
Source: Investopedia
How they calculate petrol and diesel prices in India
Petrol Price
Diesel Price Calculation
International Price of Crude Oil with Ocean Freight (as on 1st April 2017)
$53 or Rs 3445 per Barrel
$53 or Rs 3445 per Barrel
1 Barrel of Crude Oil
159 Litre
159 Litre
Crude Oil - Cost per Litre
Rs 21.67 per Litre
Rs 21.67 per Litre
Basic OMC Cost Calculation
Entry Tax, Refinery Processing, Margin, Landing Cost
Rs 3.59 per Litre
Rs 4.04 per Litre
OMC Margin, Transportation, Freight cost
Rs 2.7 per Litre
Rs 2.74 per Litre
Basic Cost of Fuel after Refining Cost
Rs 27.95 per Litre
Rs 28.45 per Litre
Additional: Excise Duty as on 1st April 2017
Rs 21.48 / Litre on Petrol
Rs 17.33 / Lit on Diesel
Pricing Charged to Dealers before VAT
Rs 49.43 per Litre
Rs 45.78 per Litre
Calculating Dealer Retail Price - Base Location Delhi
Commission to Petrol Pump Dealers
Rs 2.58 per Litre
Rs 1.65 per Litre
Fuel Cost Before VAT (rounded off for approximation)
Rs 52.01 per Litre
Rs 47.43 per Litre
Additional: VAT (Varies from State to State - 27% on Petrol & 16.75% on Diesel + 25p as Pollution Cess with Surcharge)
Rs 14.28 / Lit on Petrol
Rs 8.18 / Litre on Diesel
Final Retail Price as on 1st April 2017 -(calculation)
Rs 66.29 per Litre
Rs 55.61 per Litre
Source: www.mycarhelpline.com
Top ten countries with cheapest gasoline prices
| Country | Price ($/litre) |
| Venezuela | 0.01 |
| Saudi Arabia | 0.24 |
| Turkmenistan | 0.32 |
| Algeria | 0.32 |
| Kuwait | 0.34 |
| Egypt | 0.35 |
| Iran | 0.37 |
| Ecuador | 0.39 |
| Bahrain | 0.42 |
| Kazakhstan | 0.46 |
Top ten countries with the most expensive gasoline prices
| Country | Price ($/litre) |
| Hong Kong | 1.94 |
| Norway | 1.87 |
| Iceland | 1.81 |
| Monaco | 1.68 |
| Israel | 1.68 |
| Netherlands | 1.65 |
| Denmark | 1.64 |
| Greece | 1.63 |
| Italy | 1.62 |
| Sweden | 1.59 |
Source: globalpetrolprices.com