A well explained details by an officer from BPCL on why Petroleum products' price is increasing every now and then. I may not be able to answer your counter questions but someone may be. Hope some of us would find it a satisfactory explanation and do not woe against price hikes.
I am giving certain details on the Petrol pricing, as desired by everyone.
First of all let me clarify that Oil companies are not making huge profits. If you see the BPCL Balance Sheet for the 9 months ending 31st Dec 12, BPCL has made a loss of 2154 Crores on cumulative basis. But, third quarter alone, BPCL has made a profit of 1647 Crores. That profit has been made because, the Government has given subsidy to all the oil companies to make up the losses partly they have made on account of the under recoveries on sale of Diesel, Kerosene and LPG. However on Cumulative Basis BPCL is on a loss at 2154 Crores. If the Govt gives further subsidy during the current quarter to make up the losses fully or partly, BPCL may be making a nominal profit at the year end.
Last Financial year the Profit for BPCL was Rs 1311 Crores. But please remember that this profit is on a Turnover of around 210,000 Crores. So the profit works out to 0.62 percent, which is very meager compared to other manufacturing industries where the profit margin is 5 to 10 % of the Turnover. Oil companies need to make reasonable profits in view of the huge investments they have to make for improving the quality of fuels they have to produce, increasing the capacity of the Refineries etc. For example, Kochi Refinery is investing 20,000 Crores within the next four years to improve the quality of Petrol and Diesel to Euro IV standards and for building up the capacity by 6 Million Tones etc. For making such huge investments, Oil companies need money and you will agree no bankers will give us the Loans unless we are credit worthy without reasonable profit.
Now let me come to the Petrol pricing. The Crude oil price is now at an average of 110 $/Barrel. At 55 Rs a Dollar, and considering one Barrel is 159 Liters, the price of Crude oil is 38 Rs a Liter. Government gets around 25 Rs per Liter as Excise Duty, Sales Tax, Cess etc and the Retail Price of Petrol now is 72 Rs. So oil companies get around 47 Rs per Liter and the cost of crude oil is 38 Rs. The difference 9 Rs per Liter is just sufficient to take care of transportation of Crude Oil from Gulf/ Africa/ Malaysia; the Processing cost of the Crude; Processing, transporting, storage losses; transportation cost of the products from the Refineries to the Petrol pumps, the dealer commission etc. When the cost of Crude oil increases or when the exchange value goes up, oil companies have no other go but to increase the retail price. If the Crude oil price decreases, oil companies reduce the price of petrol too.
Now in the case of Diesel, it is another component of the Crude oil and cost wise, it is more or less of the same production cost as Petrol. But in the case of Diesel, Government levies are slightly lower and hence the price build up is around 60 plus Rs. Whereas we are selling Diesel at 50.60 Rs in the Retail market. So every Liter of Diesel sold, oil companies are now making losses of around 10 Rs a Liter and that is why an increase of 50 Ps every month is now being implemented.
The case of Kerosene and LPG is the worst. Kerosene, the subsidy price is around 20, whereas the Crude Oil cost itself is 38 Rs a Liter. Subsidized LPG, Oil companies get around 15 Rs a Liter. These losses Oil companies make on the sale of Kerosene, Diesel and LPG is known as under recoveries and the Govt reimburses the losses partly to the Oil companies. So the Govt needs money to reimburse such under recoveries and that is the reason why Govt collects a good amount as Taxes on the sale of Petrol. This is a cross subsidy mechanism, Govt collecting the Taxes on the sale of Petrol to cross subsidize the sale of Kerosene, LPG etc.
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