The Bhutanese Leading the way.
Articles by The Bhutanese on the possible overpricing of fuel to Bhutan by Indian Oil Marketing Companies became a point of discussion in the National Assembly during the question hour session as references were made to the articles done by the paper.
The MP from Gangzur-Menji, Loday Tsheten (based on the articles by this paper recently and in the past years) said that over the years, there have been recurring public concerns regarding the lack of clarity and transparency in the pricing mechanism used for fuel imports from Indian Oil Marketing Companies (OMCs) also known as Public Sector Undertakings (PSUs).
He said despite Bhutan receiving exemptions from certain Indian taxes and duties, there has been uncertainty regarding how the final retail prices of petrol and diesel in Bhutan are determined.
He asked the government to disclose the complete pricing formula currently used for the import of petrol and diesel into Bhutan, including refinery transfer price, freight and transportation charges, dealer commissions, taxes and levies, exchange rate considerations, and any other applicable charges or margins.
The MP said that reports (by this paper) indicate that fuel prices in Bhutan declined in the past significantly (from 2023 onwards) following negotiations with Indian Oil Marketing Companies, raising legitimate questions about the earlier pricing structure, applicable margins, and the basis for price revisions.
The MP asked if the government has undertaken any independent review, audit, or verification of the pricing methodology and margins applied by Indian Oil Marketing Companies, and what measures are the government taking to institutionalize a transparent, predictable, and independently verifiable fuel pricing mechanism for Bhutan in the future.
Strengthening transparency and seeking clarifications
The Minister for Industry, Commerce and Employment Namgyal Dorji said that there has been a newspaper report on the issue.
Lyonpo said the government has regularly reviewed and examined fuel pricing trends, particularly during periods of significant fuel price escalation.
Clarifications and additional details have been sought from the principal oil companies regarding invoice structures and contributing cost components.
He said the government has also engaged the Government of India on issues relating to export duties and pricing arrangements affecting Bhutan’s fuel imports.
At the domestic level, the Government continues to monitor pricing structures, dealer margins, transportation costs, and other distribution-related charges applicable within Bhutan.
“However, detailed commercial pricing structures and internal margins of Indian Oil Marketing Companies remain commercially sensitive information that may not be subject to full public disclosure,” said Lyonpo.
Lyonpo said the government remains deeply appreciative of the continued support extended by the Government of India in ensuring uninterrupted supplies of fuel and LPG to Bhutan, including the exemption of export duties on fuel exports to Bhutan. He said this longstanding cooperation has played an important role in safeguarding Bhutan’s energy security and mitigating the financial burden associated with fuel imports.
“Going forward, the Government will continue engaging closely with the concerned Public Sector Undertakings and relevant authorities in India to further strengthen transparency, coordination, and predictability in fuel pricing and supply arrangements. Where necessary, such matters will also continue to be pursued through appropriate diplomatic and official channels,” said Lyonpo.
Lyonpo said the current increase in international fuel prices is largely driven by external conflict-related market disruptions and global supply uncertainties.
Lyonpo said the government has recently introduced the National Fuel Price Smoothening Framework as a strategic mechanism to help cushion the domestic economy and consumers from sudden and severe fuel price shocks arising from global market volatility and geopolitical developments, such as the situation currently being experienced.
At the domestic level, he said the government remains committed to maintaining a fuel pricing mechanism that is transparent, responsive to market realities, and protective of consumer interests, while also ensuring the long-term sustainability, reliability, and security of fuel supply arrangements for the country.
Domestic pricing
Lyonpo said Bhutan imports its entire fuel requirement from India through Indian Oil Public Sector Undertakings. Domestic fuel prices are revised on a fortnightly basis based on the invoices, or landing prices, received from the principal oil companies.
Upon receipt of these invoices, the Department of Trade determines retail fuel prices using the approved domestic pricing structure.
Lyonpo said that the domestic pricing parameters themselves have not been revised since 2023. Therefore, recent increases or decreases in fuel prices were driven primarily by fluctuations in the fortnightly invoices received from the principal oil companies, which in turn are influenced by international petroleum product prices and global supply chain costs.
Lyonpo said the domestic fuel pricing structure inside Bhutan currently includes Invoice value received from the principal oil companies; Excise Tax at 5%; Goods and Services Tax (GST) at 5%; Import Permit Fee of Nu. 0.25 per liter of fuel; Transportation charges; Depot surcharge of Nu. 0.60 per liter for petrol and Nu. 0.50 per liter for diesel; Transit losses (shrinkage allowance); and dealer margins of Nu 2.5 per liter for petrol and Nu 1.6 per liter for diesel last revised in 2023. For comparison, the current dealer margin in India is approximately Rs. 4 per litre for petrol and Rs. 3 per litre for diesel.
IPP
Lyonpo said that Bhutan’s fuel pricing mechanism (from OMCs) follows the internationally recognized Import Parity Price, or IPP, methodology. Under this system, prices are based on the estimated landed cost of refined petroleum products imported into Bhutan.
The Bhutanese had earlier found the diesel price to Bhutan is based on the Arab Gulf Gasoil, which is the price of actual diesel after being refined and loaded at Gulf ports for export, and petrol price is based on 2 RON Singapore Gasoline’, which is again finished petrol product loading in Singapore’s ports.
Lyonpo, said fuel prices are influenced not only by international crude oil prices, but also by associated logistics and supply chain costs, including freight, insurance, inland transportation, distribution expenses, and supplier margins.
He said the government has on several occasions sought clarification regarding invoice components, particularly during periods of sharp price increases. More recently, consultations were also held with the Government of India to verify whether export duties were being imposed on fuel exports to Bhutan. The Government of India has clarified that no export duties are levied on fuel exports to Bhutan.
Lyonpo said, certain detailed commercial information, such as the internal profit margins of Indian Oil Marketing Companies, is treated as commercially confidential business information.
He said that within Bhutan, the government does maintain oversight mechanisms regarding domestic distribution costs and dealer margins.
MoU
Previously, the supply of fuel to Bhutan was governed through arrangements between the Department of Trade and the principal Indian oil companies.
However, beginning in 2024, the arrangement was elevated to a Government-to-Government framework through the signing of a formal Memorandum of Understanding between the Royal Government of Bhutan and the Government of India on the General Supply of Petroleum, Oil, Lubricants, and related products.
The current MoU was signed on 21 March 2024 and will remain valid until March 2027.
Lyonpo said this framework has further strengthened institutional coordination, predictability of supply, and overall energy security cooperation between the two governments.
The Bhutanese has pointed out that the abnormally huge price increases for Bhutan in recent times is not just driven by the price of crude oil and margins on that by OMCs but due to the fact that the benchmark is the highly speculative Arab Gulf Gasoil for diesel and 2 RON Singapore Gasoline for petrol which are finished products and not crude.
The government has spent around Nu 1 bn plus from the ESP with another Nu 1.5 bn allocated again from the ESP.
The Nepal Oil Corporation is planning to seek explanation from its counterparts in India on the high prices and also the break up of prices.
Despite Lyonpo’s attempt to do a delicate tight rope walk on the issue the OMCs have not responded to Bhutan’s efforts for the last four years to get a break up of the fuel prices to Bhutan.
