Bhutan may have lost billions due to overcharging by Oil Companies in India

Oil Companies shy away from sharing fuel cost break up

Nepal buying same fuel from same companies at cheaper rate than Bhutan

Last week, this paper did a story showing the vast differences in prices between what Indian Oil Companies charge fuel pumps in India as compared to Bhutan including cheaper fuel being sold to Nepal.

Following this the Minister for Economic Affairs Lyonpo Loknath Sharma said, “We are trying to find the mathematical components in the fuel pricing done for Bhutan and if there is any anomaly then we will take it up with the Government of India.”

DoT trying to get info from Oil Companies

However, this is easier said than done as the Department of Trade (DoT) has been racking its brains and making repeated requests for the details and break up of the pricing for Bhutan from the Oil Companies for three to four months without any success.

A senior government official said, “The Indian Oil companies keep telling the Trade people that they are only operating on the ground and the decisions are made in the headquarters and that even they too claim to not know the pricing structure. They have promised to pass on the request, but nothing has come of it yet.

However, what is clear so far is that the Indian Oil companies are claiming to charge Bhutan an average of international oil prices of finished products like petrol and diesel. This information was given to the DoT only after months of formal and informal requests, however, a break up of the costs to Bhutan is still yet to come.

The DoT said that while Bhutan is exempted from Indian excise duty and other state levies, the fuel prices charged for Bhutan as per the Oil Marketing Companies (the Oil companies) is based on the international commodity prices which is the moving average prices of petrol and diesel in the last fourteen days.

DoT said on invoice price there is delivery charges of Nu. 1.5 per liter for transportation from supply point in Siliguri NJP to the border point in Phuentsholing. 

It said that on the above invoice price, the domestic pricing components such as green tax (5%), sales tax (5%), depot surcharge, local transportation, dealer commission, shrinkage allowances etc coming to around 16% are added to get the final retail price at different outlets in Bhutan.

With the landed price of petrol and diesel in Phuentsholing on 1st April 2022 at Nu. 79.73 per liter and Nu. 86.97 per liter respectively, the final pump price in Phuentsholing after adding domestic pricing components comes to Nu. 91.39 per liter for petrol and Nu. 98.50 per liter for diesel, while it is Nu. 93.75/liter for petrol and Nu. 100.65 per liter for diesel in Thimphu.

It said the transportation component fixed at Nu. 4.47 per kilometer for hilly areas and Nu. 3.95 per kilometer for the plain areas on a roundtrip basis, constitute only 1.35 % of the final retail price. 

The Department said that in its efforts to ensure transparency and get accurate information, it has requested the Oil Companies in India to share the detailed price break-up of the invoice price so that the same could be shared with the public.

Fuel to Bhutan and Nepal from the Indian pool

The explanation by the Oil Companies given to the DoT gives the impression that fuel for Bhutan is in a somewhat special category to be charged much higher and cannot be compared to domestic fuel prices in India.

However, this is contradicted by a 2013 Government of India report titled, ‘Report of the Expert Group to Advise on Pricing Methodology of Diesel, LPG and Kerosene.’

The report in page 29 says, “The entire production of major petroleum products, including HSD (Diesel) by PSU Oil marketing companies is meant for consumption within the country and they only export small quantities of diesel mainly to Bhutan and Nepal under bilateral agreements between governments of India and the two countries.”

The report shows that in 2012-13 financial year India exported 572 MT of diesel to Nepal and 60 MT to Bhutan which is 91% of total export by the PSU refineries.

This report is important as it shows that there is no special arrangement for Bhutan being made by Indian PSU Oil companies to justify charging higher as we are getting fuel from the same pool as pumps in India.

The pricing mystery

The Indian Oil Company’s website shows that as of 1 April the base price of diesel in Delhi inclusive of crude, refining cost, freight, profit etc is INR 55.09 per liter. This is the actual price.

Then central government taxes of INR 21.80, state government taxes of 13.60 and dealer commission of 2.58 is added to make it INR 93.07.

The taxes above cannot be applied to Bhutan and if the same base rate is applied for Bhutan then fuel should be reaching Bhutan’s border at INR 55.09 plus transportation charges. The transport charge of fuel from Siliguri to Phuentsholing is INR 1.5 per liter.

This should bring the cost to INR 56.59.

However, Diesel reaches Bhutan at INR 86.9 at the border which is Nu 30 more than the above price.

Since the fuel is being exported to a foreign country if another Nu 10 is added as costs and profit on the INR 56.69, then diesel should reach Bhutan at INR 66.59. This is still a Nu 20 gap.

After the INR 86.9 per liter diesel reaches Bhutan then the DoT adds local taxes and charges meaning the fuel costs Nu 100.65 when it reaches the pump in Thimphu.

Even in petrol, the base price in Delhi with freight is as of 1 April is INR 53.54 while Bhutan is currently charged INR 79.72 per liter which is a difference of Nu 26.18.

The senior official said that the analysis done by officials in Bhutan of the prices cannot justify the higher fuel prices for Bhutan. He said there is a suspicion that Bhutan is being overcharged by INR 20 per liter by the fuel companies in India.

The official said that this has been going on for many years across many governments and until now nobody has questioned it.

The main reason why the Department of Trade is trying to get the break up of the pricing to Bhutan is that it can serve as a basis to discuss with the GoI.

Nepal

The GoI report above mentions Nepal and Bhutan buying fuel from the Indian pool based on agreements with India.

However, Nepal gets fuel at a much cheaper cost than Bhutan.

While Bhutan as of April currently gets Diesel at INR 86.97 per liter till Phuentsholing, Nepal pays only INR 74.74 per liter which is cheaper by INR 12.23 than Bhutan.

Similarly, while Bhutan gets petrol at INR 79.92 per liter from India, Nepal buys the same at INR 68.44 per liter which is cheaper by Nu 11.48 than Bhutan.

The lower price of fuel for Nepal allows the Nepal government to impose its own higher taxes on fuel than Bhutan and so it becomes an important source of revenue for the Nepal government.

In September 2019, India and Nepal started a 63 km oil pipeline from Motihari, Bihar to Amlekgunj, Nepal. However, this pipeline is only for diesel for the central and western region of Nepal and only brought down the fuel price by INR 2 per liter due to saved transportation cost, and even today a large portion of Nepal’s fuel is still imported by fuel trucks due to storage capacity issues in Nepal.

In Nepal, the purchase and distribution of oil is done by the state owned Nepal Oil Corporation (NOC) which has a detailed agreement with the Indian Oil Corporation (IOC).

The NOC Spokesperson Binitmani Upadhyaya told The Bhutanese that the IOC also charges fuel to Nepal based on the moving average international prices of petrol and diesel in the last fourteen days.

However, unlike in Bhutan, the NOC has an active pricing committee that checks if the prices sent from India is as per the agreement between IOC and NOC or not.

“If they add something more then at that time we ask them from where these things are coming or how they are added,” said Binitmani. This shows that the NOC gets enough data to even question the prices sent from India.

Bhutan does not get the same level of data as the NOC.

Binitmani said Eastern Nepal, which is places like Biratnagar, gets its fuel from the same places like Bhutan -which is Siliguri.

He said that on the cost price from India the various domestic taxes are added by the Nepal government and then fuel is sold in Nepal.

He said he has no idea why Nepal is getting fuel at a cheaper price than Bhutan.

While Bhutan’s oil dealers have an MoU with Indian Oil companies that involve the Trade Department there is no detailed agreement or a similar pricing committee.

Bhutan has a price committee that meets only every three years to look at larger issues like charges, dealers commission etc.

Binitmani said Nepal has been purchasing fuel from the IOC for around 50 years and the agreement was renewed a few days back in Delhi for another five years.

The lower cost of fuel for Nepal compared to Bhutan is leaving officials in Bhutan stumped due to two issues.

The first is why two neighbors of India buying oil from the same companies are being charged different prices. Secondly, Bhutan is often regarded as India’s closest friend in the region, but the fuel oil pricing is discriminatory against Bhutan. 

IOC has no answer

The reporter contacted the largest of the PSUs, Indian Oil Corporation on the issue. Its Executive Director of Retail Sales, Vigyan Kumar, said that he has already received a mail from Bhutan about the pricing structure and he has given it to people to examine it.

He claimed he does not have any immediate information and he needs to discuss the issue there.

Billions in implications

On the higher side Bhutan is paying around Nu 30 more per liter and on the conservative side it is Nu 20 per liter.

According to the DoT, Bhutan on an average imports around Nu 8 billion (bn) in diesel and petrol.

If we take the price of fuel in Bhutan as Nu 100 per liter (like Diesel) then every year Bhutan is overpaying Nu 2.4 bn a year if the difference is Nu 30 and Nu 1.6 bn if the difference is Nu 20.

Even if we compare to Nepal which is paying around Nu 12 less per liter, than Bhutan is losing around 1 bn a year.

If we calculate the losses to Bhutan due to this higher price over the years then the losses will run into the billions.

In terms of your own fuel bill if you are spending Nu 2,500 per month on fuel or Nu 30,000 a year then you are overpaying Nu 9,000 (if difference is 30), Nu 6,000 (if difference is 20) and Nu 3,000 (if difference is around 10) a year due to this.

This paper alerted the MoEA Minister in November 2021 pointing to the huge differences in the base price of fuel sold to pumps in India and what Bhutan gets charged.

The minister ordered the Trade Department to look into the issue but despite 3 to 4 months of efforts and requests the India Oil companies which are Bharat Petroleum Corporation Limited (BPCL), IOC and Hindustan Petroleum Corporation Limited (HPCL), have not shared the price break up yet.

Check Also

Cabinet gives more responsibilities to C4CS and meets once in 2 weeks

One of the most regular features of the Cabinet was that it met every week …

Leave a Reply

Your email address will not be published. Required fields are marked *