You Can Be Forced To Pay Extra For Petrol, Diesel; Reason Is BS VI Switch-over
There is the possibility of fuel price rise in coming months as the government is considering a proposal to allow oil marketing companies charge a premium on retail prices of petrol and diesel to recover their investment in producing less polluting fuel.
How Did this Happen?
As per the reports, public and private sector oil marketing companies (OMCs) have appealed to the petroleum ministry to support a plan to raise consumer prices of auto fuels to help them recover a portion of investments made in upgrading their refineries to produce BS Stage-VI fuel.
In case of approval of this proposal by the government, the retail prices of petrol and diesel would come at a premium of about ?0.80 a litre and ?1.50 a litre, respectively for the next five years, much to the discomfort of consumers.
Why Would This Happen?
According to the statistics in the past several months, the global oil market has largely remained flat for the past several months due to slower demand.
Ths in turn caused the retail prices of petrol and diesel being cut by OMCs on numerous occasions in the past few weeks.
But if the government agrees with this application of premium charges, retail fuel prices would not reflect global pricing trend but would remain artificially higher at all times.
What Is Oil Refinery’s Take On This Issue?
“Allowing increase in retail prices of petrol and diesel is one among several options that we have to cover for incremental investment made in upgrading our refineries. We have approached the petroleum ministry with a complete plan on cost recovery and awaiting a direction,” said an anonymous senior executive of a private sector refiner.
Refineries of public sector companies like Indian Oil, Hindustan Petroleum and Bharat Petroleum have spent close to ?80,000 crore to reach BS-VI levels after rolling out BS-IV complaint fuel for national introduction in April 2017.
Moreover, the private refiners, Nayara Energy (formerly Essar Oil) and Reliance Industries have spent heavily to upgrade their facilities ahead of nationwide launch of BS-VI compliant fuel from April 1, 2020.
According to reports, the recovery of investment without a proper plan may push OMCs into the red if oil market remains subdued and a portion of demand shifts to electric mobility.
What Does Government Say About This Matter?
The center has already indicated that it wants electric to become prime mobility vehicle by 2030.
On the other hand, the OMCs are also looking to diversify, but face immediate challenge to recover their current investment before consumption of conventional fuels start receding.
The government official said “OMCs have flagged the issue but the government is yet to take a view on the matter. Alternatives would be explored first before a call is taken to revise pricing formula for auto fuels,”.
How Would It Affect The Audience?
Fuel prices have been deregulated in the country that means the prices at the retail level are determined on the basis of global movement of petroleum product prices.
As of now, petrol and diesel prices are revised daily by OMCs based on average price of fuel in previous fortnight.
If the OMCs request is accepted, pricing of petroleum products would again go back to a regulated regime or not reflect true value. (Reference)
According to sources, instead of a direct premium for cost recovery, government may allow OMCs to keep petrol and diesel prices a bit higher in times of falling prices to prevent any public backlash to the measure.