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From May 1, fuel bill will swing daily to mirror global crude price

Oil marketing companies looking at revising petrol, diesel rates on a daily basis; will begin with five cities of Puducherry, Vizag, Udaipur, Jamshedpur and Chandigarh from May 1

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In what could soon see your fuel bill swinging daily, state-owned oil marketing companies (OMCs) are looking at revising prices of petrol and diesel every day to keep them in line with global crude oil and currency rates.

This new pricing model will first be implemented in five cities of Puducherry, Vizag, Udaipur, Jamshedpur and Chandigarh from May 1 and then gradually rolled out nationwide.

Currently, government-owned OMCs – Indian Oil Company (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) –review fuel prices every fortnight to tune them to international crude prices.

This leads to manipulation of fuel prices for political gains by various governments. The new pricing method will reduce political interference in the pricing of fuel and enhance transparency, which would eventually lead to a more stable margins for OMCs, controlling around 95 per cent of the market today.

The remaining 5 per cent is held by private auto fuel retailers Reliance Industries Limited (RIL) and Essar Oil despite the fact that they own 8.5 per cent share in terms of number of outlets and 27 per cent share of the domestic petroleum refining business.

E S Ranganathan, managing director of Indraprastha Gas Ltd (IGL), said with a day-to-day revision of fuel prices, consumers would have a better understanding of pricing than when it was calculated on a fortnightly basis.

He said it would mirror the published international crude price of the day as against the 15-day average that is being used at present for calculating the price.

He, however, wondered how dealers would be able adjust their pricing daily as most of them buy huge stocks of fuel and store it. Ranganathan said only those with high daily turnover bought from OMCs on a day-to-day basis.

“OMCs will have to find a way to index the (fuel) price. Most dealers buy stock for a longer period and if crude dip during this period then OMCs would have to compensate them for the hit they would take by selling at lower price to customers,” he said.

Over the last few years, the government has been gradually freeing fuel prices from the regulatory control. Petrol price was deregulated in 2010 and diesel in 2014. The latest move, which was a long-pending demand of the sector, is another step in that direction.

The most recent slash of Rs 3.77 per litre in petro price and Rs 2.91 per litre in diesel price on April 1 came after three months because of election in five Indian states.

Ranganathan said the new pricing model would reduce the scope of such manipulation of fuel prices for political dividends and would facilitate in consumers getting immediate gains from any drop in global crude price.   

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