Bhutan drafts MoU aimed at cheaper oil price and supply consistency

India’s Petroleum Minister has agreed to have an MoU

During the recent visit of the Ministry of Economic Affairs (MoEA) Minister Loknath Sharma to Delhi, he raised the matter of the need for a Memorandum of Understanding (MoU) between the two governments on the supply of fuel to Bhutan with India’s Minister for Commerce and Industry, Piyush Goyal.

Since Lyonpo’s meeting with the Petroleum Minister of India could not take place due to the Parliament session at the time, the Commerce Minister called up the Petroleum Minister on his mobile and conveyed the request of the MoEA Minister.

The Petroleum Minister responded that an MoU should be okay and should not be a problem. This was also after the MoEA Minister made it clear that Bhutan was not asking for any subsidies.

Lyonpo said he stated that his intention for an MoU was due to the recent international crises like the Ukraine war and so supply consistency has to be maintained, but there is no agreement on this between the two governments.

He said while the Indian government had deregulated the prices of petrol and diesel (in 2010 and 2014 respectively) and so the Indian government does not directly interfere in fuel prices charged by the government owned Public Sector Undertaking (PSU) Oil Companies in India, Lyonpo still pressed for the MoU between the two nations to avoid unwanted issues.

In the mean time various officials in the Ministry of Foreign Affairs (MFA) and the MoEA have drafted a final draft of an MoU which has been sent to the MFA which is soon to be sent to Delhi.

The MoU basically enshrines that there will be continuity and consistency of supply of not only petrol and diesel but also jet turbine fuel for airplanes, kerosene and other industrial grade fuels, especially keeping in mind about what is happening around the world and Bhutan’s inability to import from other countries. 

The MoU importantly mentions that the price will be an ex-factory price excluding all taxes and levies and when the PSUs dealing with Bhutan would give invoices every fortnight with proper price break ups.

This is important as the ex-factory price essentially means the cost of the raw crude, cost of processing, cost of transportation and other administrative costs after which fuel to Bhutan should not have any other levies.

If this is agreed to and followed in letter and spirit, then fuel prices to Bhutan should come down as currently prices are too high and the break up of the prices has not been provided by PSUs, despite multiple requests.

The MoU also lists multiple entry points for fuel to enter Bhutan through all entry points as currently they enter only through a few places like Phuentsholing, Gelephu and Samdrupjongkhar.

This leads to fuel re-routing at times which adds to cost and time.

The aim is that if the fuel is for Gomtu and Samtse then it should not have to come to Phuentsholing or if it is for Kalikhola then it should not have to travel to Gelephu or of it is for Jomotsangkha then it should not have to come to Samdrupjongkhar first.

Lyonpo said that the MoU will address pricing issues. He said in his meetings he brought forward the point that the cost fuel to Bhutan must be cost of import of the crude and cost of processing and supply and there should be consistent pricing and also how it will be charged should be clear.

The minister said that when he raised the issue of bulk pricing coming in recently that raised fuel prices he was told by some Indian officials who enquired with the PSUs that Bhutan had been charged bulk pricing for a long time.

Lyonpo said Bhutan’s request is to not charge Bhutan with bulk pricing as it is higher than other prices, and at the same time Bhutan is also not asking for any subsidies. He said there should be a transparent and clear pricing mechanism when it comes to fuel prices.

He also said since Bhutan’s requirement is very less it cannot import fuel directly

The minister said that if the MoU is agreed to then one outcome will be a little cheaper fuel.

The MoU is expected to lead to talks and negotiations between the two countries with a working level technical group looking at the details where it is hoped India’s Petroleum Ministry can involve the so far evasive Oil PSU companies.

Background

Both Petrol and Diesel in India are cheaper than Bhutan or around the same price at times. This does not make sense as in India the fuel sold there includes the raw crude price, transport price, refining cost, administrative expenses, agent commissions and around 40% to 50% in central and state government taxes.

Since Bhutan should not be paying the Indian domestic taxes, in theory we should be getting oil at around half the price we currently import at.

This paper in a series of stories has shown how Bhutan is being overcharged for fuel compared to pumps in India and also Nepal and also showed all informal arguments from Oil PSUs justifying a higher price of Bhutan not to be supported by facts on the ground.

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