Bhutan may request India to remove bulk pricing of fuel

As fuel prices go through the roof also pushing up the cost of goods, the Department of Trade is expected to make a presentation to the Prime Minister and Foreign Minister to reduce the fuel price from India.

The presentation will give a basic background of the discussions so far and the various options and possible outcomes.

The first order of business is to get the Indian PSU Oil Companies to give a transparent breakdown of the oil prices charged to Bhutan which has not been forthcoming so far despite repeated requests.

The Minister of Economic Affairs Loknath Sharma who was given a basic break up by the IOC in Kolkata said they are not comfortable with the data and break up given to them so far.

Then there are two options for Bhutan to get a lower price for Bhutan.

One option is to get the same price as Nepal which gets the same fuel from the same companies cheaper by Nu 12.23 for diesel and Nu 11.48 for petrol per liter than Bhutan.  This would mean seeking a similar MoU arrangement between the two governments like in the case of Nepal.

The second option which is more favored is to ask India to do away with the bulk pricing methodology currently being used for Bhutan (and Nepal) which is why the prices are so much higher than then the base price in India before taxes there.

Bulk pricing is based on the international commodity prices which is the moving average prices of petrol and diesel in the last fourteen days. However, even the details of this bulk pricing has not been made available to Bhutan.

The favored option is to do away with this bulk pricing, which is far more expensive, and to charge based on the base price to Bhutan which would also be the cost plus model.

For example, as per the Indian Oil Corporation website the base price of fuel for Delhi inclusive of freight costs is INR 56.52 per liter for petrol and INR 58.16 per liter for diesel.

After this central and state government taxes and dealer commission are added which pushes the petrol cost to INR 105.41 per liter and INR 96.97 for diesel.

Since Bhutan as a sovereign country does not have to pay taxes logic dictates that India sell the fuel at the base price plus transportation cost to Bhutan.

However, using the bulk pricing methodology fuel currently comes to Phuentsholing at Nu 82.6 for petrol and Nu 96.9 for diesel. This is Nu 26.08 more per liter than the base price and freight charges for petrol in India and Nu 38.7 more per liter than the base price and freight charges for diesel in India.

It is also around Nu 12 more than what is charged to Nepal for diesel and and around Nu 11 more than what is charged to Nepal under the same bulk pricing model.

Doing away with bulk pricing and going for the cost plus model can potentially make diesel cheaper by around Nu 38 per liter and petrol by around Nu 26 in Bhutan.

After a series of stories on the issue by this paper even the foreign minister Dr Tandi Dorji acknowledged that there is a difference in fuel price that goes up to Nu 30 to Nu 26 per liter.

The Prime Minister is expected to be back in Thimphu by end of May or early June and so the presentation will be made then.

In the meantime, Lyonpo Dr Tandi Dorji said that based on the advice from the Ministry of Economic Affairs the Ministry of Foreign Affairs will write to the Indian Embassy.

Dr Tandi said that they will seek the support of the Indian Embassy to get more information on the break up of prices and also start discussions with the PSUs.

Dr Tandi had earlier said that the matter will be taken up with the GoI.

Lyonpo said that before that, however, Bhutan must be clear about its own stance. He said that Bhutan is also trying to get a copy of the agreement between India and Nepal on fuel. This has been denied to Bhutan so far.

There is a reluctance currently in the government to compare Bhutan to Nepal and ask for the same treatment or prices, but the focus will be more to advocate Bhutan’s case with its own arguments.

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