Around 6% of fuel price already goes to dealers to cover costs and returns
You may think your fuel price is high enough, but it could go slightly higher if the government approves the recommendation of a government committee to revise fuel transportation rates for tankers of oil distributors.
Currently, a fuel tanker charges around Nu 13,000 for a round trip from Phuentsholing to Thimphu with the amount covering the tanker going back empty too.
The committee has recommended for this amount to be increased which basically means that your fuel price will go up as currently 1.35 percent of the fuel price is linked to the transportation cost.
The committee is supposed to meet every three years but it could last meet only in 2016 when it set the prices and in 2020 the pandemic happened.
An official said currently the market rate for a round trip for a truck is around Nu 22,000 to Nu 25,000 and so he said that the Nu 13,000 rate for the tanker is far below the market rate.
The proposed amount which is not revealed is definitely higher than the current rate but also not as high as the market rate.
In the meantime, the paper found that on the fuel that comes on the border apart from the 5% Bhutan Sales Tax, 5% Green Tax and Depot Surcharge collected as taxes by the MoF, around 6 percent of the fuel cost goes to the dealer. These are as dealer commission 1.5%, transportation at 1.35%; and the rest coming as operating costs for the dealer, shrinkage allowance for when fuel evaporates, product loss allowance for when the tanker is emptied into tanks, return on working capital for holding two weeks’ stocks, transit insurance and financial charges which are the cost of financial transactions.
The official said that the committee took into note inflation while recommending higher transportation prices. However, at the same time given the overarching ramifications and knock on effects the committee did not agree to all the demands of the oil dealers.
The Minister for Economic Affairs Lyonpo Loknath Sharma said, “On pricing attributes, it was proposed in 2020 but as cost was increasing we did not consider then. The committee has again reviewed it as even PoL dealers are consistently following up as price of transportation has increased over the years. We will have to look at pricing holistically and a decision is not yet taken. The last pricing was done in 2016. I don’t have concrete answer now on these things as more discourse is required.”
He said on domestic pricing it is high time to revisit it, but then we need to be mindful as well as any further increase even in transportation would effect everyone. “It is a little tricky.”
The Committee has representatives from Ministry of Finance, RSTA, BCCI, Department of Revenue and Customs, Metrology for the calculations and the Bhutan Standards Bureau.
However, an observer on the condition of anonymity criticized the current domestic fuel price system.
He said the dealer commission of 1.5% means that the higher the price of fuel the more money the dealer makes.
He asked if dealer commission is already being given then why is there operating costs, return on capital, financial charges and others.
On the transportation charge he said the argument for a two-way fuel price is idling charges for the truck going empty back, but here he said it should not apply in the fuel tankers case as the next load is assured.
He criticized the current pricing system as favoring the dealers and leading to higher domestic prices. He said there is no space to improve efficiency as all the costs are covered for the dealer and the profits are not only assured but go up with prices.
This comes in the backdrop of investigative stories by this paper showing how Bhutan is paying more for fuel at the border than Indian oil pumps (minus taxes) and also Nepal which buys from the same companies.