rediff.com: Oil firms to revise petro prices fortnightly

Government-owned oil retailing companies -- Indian Oil, Bharat Petroleum and Hindustan Petroleum -- will fortnightly revise petrol and diesel prices to match import parity levels, Petroleum Minister Ram Naik said on Wednesday.

"Oil companies have been given the freedom to revise petroleum product prices on their own based on the fortnightly average of international prices," Naik told a news conference.

This month, oil companies have twice revised upwards prices of petrol and diesel. On June 4, they jacked up petrol prices by about Rs 2.50 per litre and diesel prices by Rs 1.50 per litre and hiked petrol and diesel prices by Rs 0.25 per litre each on June 16.

Explaining the principle, petroleum secretary B K Chaturvedi said oil companies would fix refinery gate prices of petroleum products based on the price it would have to pay if the products were imported (import parity) and then work the retail price after adding duties and local levies.

Oil companies would work backwards on the fortnightly average of product prices to calculate the refinery gate price, which would form base for calculation of consumer price after duties and commission are added, he said.

"Companies would make further adjustments, upward or downward, on a fortnightly basis with the changes in the refinery gate prices which are fixed in line with international oil prices," Naik said.

With this, domestic retail prices of petroleum products would get aligned with the international prices, in line with the practice prevalent in other deregulated economies, he added.

Oil analysts have welcomed the government's decision and say that it is an important step in dismantling the administered pricing mechanism regime that existed till April this year.

"It is a very positive thing for oil companies and consumers. Most importantly, it shows that the government is delivering on its promises to do away with the APM," says Karthik Ramakrishnan, an analyst with the Mumbai-based, Sunidhi Consultancy Services.

The fortnightly change in prices is also expected to lead to greater competition among petrol pumps. However, the frequent changes in prices is something that consumers will have to get used to.

"Right now there is an unofficial charter that says that all companies keep their prices alike. Now, there could be a difference, albeit marginal, between the prices of different company outlets. As for consumers, they will have to get used to oil being like any other commodity in the market, its price fluctuating frequently," says Ramakrishnan.

Today, nearly 65 per cent of the oil outlets are company-controlled, which is why analysts say that the dealers will be quick to pass on any changes in the price to the consumers.

"If oil prices go down, consumers will benefit immediately. But if they rise, the consumer will have to learn to pay the price. It will be mandatory for all petrol pumps to display the current petrol/diesel price," says Ramakrishnan.



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