Why Petrol at the pump should be costing a lot less

With every passing day, the Congress party is sharpening its narrative against the ruling National Democratic Alliance-2. In the Press Conference held right after the government announced a drop of Rs.2.50 per liter (and many State governments matched it for a total of Rs.5 less at the pump), the Congress party accused the government of selling Refined petrol at prices far less than the Rs.83 per liter[1]. Congress spokesperson Randeep Singh Surjewala claimed that the government has looted Rs.13,00,000 crores over the past four years.

He slammed the Finance Minister (FM) Arun Jaitley, saying that the FM was being disingenuous with his explanations on the rise in Central Excise duty, which has been significantly hiked (about Rs.12 in a 52-month period). The reduction is insignificant and is a needle in a haystack, he added. While there is merit in his argument, what he left out was how the UPA did its monkey-balancing act to subsidize prices (by issuing Oil Bonds that the NDA government is paying[2] now).

“Refined petrol is being sold to 15 foreign countries at Rs.34 a liter (In Delhi that day it was Rs.84). Similarly, Diesel is being sold to 29 foreign countries at Rs.37 a liter (the corresponding price in Delhi that day was Rs.75)” Surjewala said, adding that he got the numbers from a Right to Information (RTI) request.

Why this price dichotomy?

Team PGurus decided to dig deeper into this issue and a few interesting facts tumbled out –

1. The lower price of exports is a ruse called under-invoicing of exports, a phenomenon that PGurus has written about, in the past[3]. While the price on the invoice in India reads low, it will be sold to a shell company in a tax haven and in turn, the shell company will mark it up by a huge margin and sell it to the foreign buyer. Is this what is happening? If yes, who are the beneficiaries?
2. That Iran will continue to supply Crude to Govt. owned Indian Oil Corporation in rupees even after November is good news. That it is willing to accept Rupees / Barter for all crude exports is better news[4]. But there is a catch. Reliable sources in Indian Oil have told PGurus that because of an obtuse agreement (no one is clear about this), the price at the pump is not the price Indian Oil paid Iran, but the higher price paid by the Private refiners, who are buying their crude in the spot market! If true, this is daylight robbery and should be stopped immediately. When Dr. Swamy commented that Petrol prices were being exploited and should be around Rs.40, was this what he meant?
3. Over-invoicing of imports, such as buying crude at spot prices and routing purchases through various companies should be stopped immediately[5].

PM Modi needs to step in quickly and order an investigation and a speedy fix to the abovementioned facts. Rupee should start appreciating again from Monday now that the deal with Iran eases pressure on the Current Account Deficit (CAD). Prices at the pump need to come down significantly. Modi needs to act now and bring order to the chaos that Oil refining process has become. Private refiners can be asked to draw down crude from Indian Oil Corporation for their refining needs instead of making spot purchases. This will save valuable foreign exchange. It will also allow bring down the price at the pump significantly. Do it now, Mr. Modi! This is the neem coating that the Oil Refining industry needs.

References:

[1] AICC Press Briefing By Randeep Singh Surjewala at Congress HQ on Fuel Price Cut – Oct 4, 2018, INC Channel on YouTube

[2] Oil bonds issued by UPA being serviced: Piyush Goyal – Jun 19, 2018, The Economic Times

[3] Money in Tax Havens – You can run but you cannot hide! Nov 29, 2015, PGurus.com

[4] India works out plan to keep Iran oil flowing – Oct 6, 2018, The Times of India

[5] Insider Vulture Cabal operating with impunity – Sep 8, 2018, The Sunday Guardian

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We are a team of focused individuals with expertise in at least one of the following fields viz. Journalism, Technology, Economics, Politics, Sports & Business. We are factual, accurate and unbiased.

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