Tracing the rupees in petrol prices

Last Updated: Sat, Apr 06, 2013 05:26 hrs

Petrol prices in India used to remain stable, whatever the prevailing prices in international markets. This went on until the government allowed oil companies to link domestic prices of petrol to international market rates in June 2010. After that, the amount you pay at the selling point fluctuates regularly, with the companies reviewing the prices every fortnight. While there have been increases every so often in the past, there have also been a few cuts that have made commuters happy.

In the last 12 months or so, prices have been raised or reduced three times. The steepest increase came in April 2012, when the price of petrol was raised by Rs 7.50.

How is the price of petrol calculated? What are the taxes and duties that are levied? Business Standard in a news report recently had a oil company executive saying that "oil and petroleum products are global commodities, the prices determined by supply and demand factors on a worldwide basis."

In this graphic, we break down the process of petrol pricing from the point of crude oil being bought to the point it finally reaches the consumer.

Crude comes to India

  • Oil marketing companies (OMCs) buy crude oil at benchmark prices from foreign suppliers. Actual cost is generally calculated on Brent crude's daily price and delivery price at the refinery.

The cost
  • A barrel of crude oil is priced currently at about $119.17
  • A barrel typically consists of approximately 160 litres of oil.
  • So the price is calculated taking $119.17 in rupee terms (Rs 54.28 per dollar exchange rate) and divided by 160.

Price at this point Rs 40.40 per litre of crude

From crude to petrol

  • The crude oil from overseas suppliers is transported to refineries in India.
  • There are over 20 refineries across the country to which the crude is transported.
  • Crude oil is pumped into distillation towers, which separate the crude into various petroleum products like diesel, petrol, jet fuel, coal tar, etc.
  • Besides the cost of distilling and refining, other costs at this point include crude custom levy and freight from ports to the refinery.
  • The price is inclusive of excise duty.

Price at this point Rs 41.64 per litre of petrol

Petrol stored by OMCs
  • Petrol, now that it has been separated from the crude oil, is ready to be sent to storage tanks of the oil companies.
  • The cost of transporting petrol from the refinery to the OMCs' tanks is added to the money paid by the oil companies for the refining bill.
  • Other components of the price of petrol at this point include excise duty and VAT.

Price at this point Rs 44.80 per litre of petrol

The price the consumer pays
  • To the price that dealers pay the OMCs, there are a number of components added.
  • Add excise duty @ Rs 9.20 per litre
  • Add education cess @ 3 per cent
    (Total excise duty + education cess Rs 9.48)
  • Add dealer commission Rs 1.79
  • Add VAT (25 per cent) Rs 11.79
    (Total duties and taxes is Rs 22.49)

Price at final point Rs 67.29 per litre of petrol.

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