MoEA shares advice with MFA to reduce fuel price

The Ministry of Economic Affairs (MoEA) has submitted its advice to the Ministry of Foreign Affairs (MFA) where it has said that the way to reduce fuel prices for Bhutan is to get India to remove bulk pricing being charged to Bhutan.

Bulk pricing is the higher price that India charges for diesel to bulk customers like Railways, big transport companies, big industries, malls and airports. This may explain why diesel in Bhutan is currently more expensive than in Indian cities.

However, it is important to note that around 50% of the bulk prices in India is composed of Indian central and state government taxes which should not be charged to Bhutan.

There is no clarity on for how long Indian Oil PSU companies have been charging Bhutan bulk prices.

The MoEA in its note sent to the MFA notes that there was a sharp increase in oil prices in March 2016.

The request from Bhutan is to charge the prices at the base price or the cost plus model with transportation charge till the border.

There is also some doubt now on if oil being sent to Bhutan is being levied with duties and taxes in India.

This is because the MoU to buy fuel from India is first signed between the Department of Trade and Oil PSUs and then a separate one is signed between the individual fuel companies in Bhutan and the Oil PSU Companies in India.

The MoU between the fuel companies, however, states that fuel pricing will be based on international prices plus some taxes and levies.

It is this taxes and levies component that is now leading to some doubt if the fuel coming to Bhutan is undergoing some Indian taxes leading to increase in its price.

Ideally Bhutan should not be paying any Indian taxes or levies on fuel as a sovereign nation.

The problem for the MoEA and the MFA is that while they have informal information there is nothing formal that has been given so far.

What adds to this complexity is that India PSU companies are being very secretive about this bulk pricing which they are treating almost as business secrets, and so are not sharing the break up with Bhutan.

MoEA has estimated that fuel price to Bhutan can come down by some amount if bulk pricing is removed.

The MoEA and the MFA both have done a comparative study of fuel prices in the region including the cheaper rates of Nepal compared to Bhutan.

Domestically, the MoEA has limited options. A source said that the only way to do something domestically is to tinker with the 5% sales tax, 5% green tax and another 5 to 6% in other additions like transport, depot surcharge etc.

Using the bulk pricing methodology fuel currently comes to Phuentsholing at Nu 82.6 for petrol and Nu 96.9 for diesel. 

Bhutan currently pays 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.

Bhutan also pay for fuel from India at Nu 12 more than what is charged to Nepal for diesel and and around Nu 11 more than what is charged to Nepal for petrol.

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