GOVINDA K. writes: Last night, the Union government hiked petrol prices. Even before the official announcement was made, most of the petrol bunks started sporting “No Stock” boards. Minister R. Ashok “raided” many petrol bunks and warned those who had stopped supplying petrol.
This did not come as a surprise for me as I had seen all this happen ad nauseam for years. Some of my relatives own petrol bunks, and I had seen them discussing petrol price hikes, since the times of George Bush‘s Iraq war when too petrol prices saw a steep increase, at closehand.
This is how it all happens:
1. The news of price originates from petroleum ministry office. That flows down to the offices of each oil marketing company (Bharat Petroleum, Indian Oil Corporation, Hindustan Petroleum, etc) and finally comes to the ears of the service station dealers. Such news usually starts doing the rounds almost two weeks before the official increase.
2. The dealers are usually tipped off by their sources in the oil marketing company on the payment of a certain prefixed amount. This was the trend some years ago. Now, due to the internet and continuous speculation by media, dealers come to know about price hike from other sources too.
3. If a cabinet meeting is scheduled to be held on a particular date when news of a hike is in the air, then it is almost always a sure sign of a price hike effective midnight.
4. When there are strong reasons to believe that there’s going to be a price hike, the dealers pay a certain amount of money. On such payment, the dealer is supplied with stocks on demand. There is more demand for stocks in such situations. Those dealers who make a higher payment will be given stocks on preference.
5. There is yet another way of making more profit. If the dealer pays more money, the people in the supply plant will send an extra load of fuel in a tanker which will be parked at the service station. Note that a fuel tank at a service station can only accommodate a certain limit of fuel. When dealers want to make more profit, they fill their tanks full and get an extra fuel truck.
6. Just a day before the price hike, the service station boys will be advised to go slow on fuel supply. And in few hours, they start putting “No stock” board and totally stop the fuel supply.
How is it an extra profit?
For every litre of petrol or diesel, the oil marketing company fixes a certain amount as commission for the dealer. During price hike, the dealer buys the petrol at the older rate and stops supply. He sells the same fuel at a higher price when the new rates become effective.
The commission given to the dealer on every litre of petrol is about Rs 1.20.
After the latest hike, a dealer will get Rs. 1.20 (commission) + Rs. 3.50 (price hike) = Rs. 4.70 (total) per for every litre of petrol. That’s the profit margin.
Fuel is measured in terms of KL (kilo litres) or 1,000 litres. Usually in one load, an average dealer buys about 4 KL of petrol (4,000 litres) and 8 KL (8,000 litres) of diesel. One load is sufficient for a period of 2-3 days. If the service station is situated in a city like Bangalore, one load will be just sufficient for one day.
You have all the variables, just calculate the amount of profit made by a dealer taking one load of fuel.
On the other hand, when there is a decrease in price which is not often, the same sources in the oil marketing companies can be relied upon to inform the dealers not to place orders. Even for this, there will be an amount to be paid for the “informers”. Hence the dealers make sure that they do not suffer any loss.
In both the cases, it is the common man who suffers due to NO STOCK!!
Photograph: BJP workers stage a dharna in Dharwad on Saturday against the increase in prices of petroleum products. (Karnataka Photo News)
churumuri 
When there are far more serious issues involved concerning the recent petrol price hike, Churumuri has trivialized it by discussing the inevitable problem of making money or losing money on the existing product inventory.
Why does Mamata who is supposed to be a friend of aam admi opposing any petrol price hike? Every high level pricing committee has concluded that petrol price has little or no impact on aam admi? Does Mamata know more about economic impact than these economists?
Why does left parties oppose petrol prices? Is it because as an opposition party it is their dharma?
As far as BJP and others, we can fully understand at least with respect to Karnataka. They wanted to divert the attention from their CM who is under attack for “throwing out” popular Lok Ayukta. It was CM who had forced the resignation of Justice Hegde. That is why he did not even make some perfunctory gestures to him to take back the resignation.
I hope Churumuri will publish far more interesting and thoughtful articles on petrol price increase. Of course if it wants to humour us by publishing this kind of pedestrian article it is fine.
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Interesting details on prices and profit margins – informative. Anyway, the UPA has done a very good thing by deregulating petrol. I drive a petrol car more than most people (around 52 km per day) but still I support this decision – high time the Govt. stops subsiding private vehicle owners.
Next, they need to work out how to have differential prices for Disel. Higher prices for the Tata Safari/Mahindra Scorpio types and lower for the BMTC buses and truck drivers etc. Again, I myself will buy an SUV soon, but I hope the Govt. does not fall for pressure tactics by the ‘private car lobby’.
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Vinay,
What would it solve? It will only encourage misuse of subsidised diesel by SUVs, like Kerosene and LPG are being used now.
BJP has only tasted power very recently, so it goes behind profiteers who are mostly the kith and kin of the congressmen, otherwise, Minister Ashok won’t order “raids” on any petrol bunk.
Churumuri, I support the above comments, instead of debating deregulation, you give this scrap.
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Agree with Mr Shenoy, nothing informative abt the post and guess its trying to deflect a discussion abt the price rise decision
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While it is interesting to see people rooting for deregulation, but the point is I would like to know more about the following, can any one point me to such info if it exists in our social, secular, democratic, republic and the beholder of my fundamental rights*. I am hoping RTI is not answer there should be a few things that should be public!
1. crude cost price+oil companies cost,profit+ central taxes + state taxes + various cess.
2. How is the cess being spent in last various years.
*with limitations!
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Good insight.
I wish there are many such articles providing insights into the business, like:
1) How an IPS officer can marry his daughter in the biggest choutary in Bangalore, without spending a penny (paisa).
2) How an current minister is owner of 200+ sites with in Bangalore city limits, and still no suspicion raised.
etc.
***
@Bhamy V Shenoy
Article on the serious issue of how price rise affect/doesn’t affect people might be needed. But like every writeup, this kind also has its place and audience.
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Not A Witty Nick:
I didn’t quite understand your question – I am arguing FOR deregulation of Petrol, and FOR deregulation for Private Disel vehicles. I’m saying that some technique needs to be worked out so that owners of SUVs pay higher prices for deregulated Disel whereas the buses and trucks pay subsidized prices.
I don’t know how we can achieve this, but this kind of differential pricing is what the Govt. should work towards. Petrol needs to be deregulated completely anyway, so that’s a good step.
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All said and done this decision to decontrol fuel is a right one. It lets market forces to decide the demand-supply equation, rather than artificially pegged prices.
However, Govt. should clarify why the taxes on Petrol so high? If it is to collect money to improve infrastructure, we are not seeing it in good roads. Commuting is a huge struggle after paying highest taxes on Fuel!!
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Who is this “COMMON MAN” you are talking about. There is nobody like that in INDIA!
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During the first US-Iraq fracas (Gulf-I round) in order to ferry out the migrant Indian workers in that area, the Govt levied a so called “temporary” surcharge on the fuel. “temporary” became permanent.
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Let all private vehicle owners above 1000 CC pay extra for petrol and gas. The Rich in this country will have to pay for the poor.
At least forcibly enforce this system through govt discipline. This must start with the lawmakers themselves.
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@Tarlemaga
You want 1000CC because you car is less than 1000CC. My car is just 1100CC. Can we change the rule to cars above 1100CC, so that I won’t pay that extra??
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I gt an offer from one of the psu to open up a petrol pump in my own land for 30 years lease the paper work is on the process. but after the price hike I have become little shaky whether I WILL BE ABLE TO MAKE ANY PROFIT or not as the private players are now in the market and how much Iwill be getting after meting all the expenses of petrol pump i.e. staff’s salary , electric bill etc. Please advise me.
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I too have got an offer froma PSU Oil marketing co. to set up a retailoutlet on my land on a 30 years lease.Even my concern is same as yours.With a fixed comission structure,which means,with the price of Diesel and petrol going up,as has been the trend so far,the comission of the dealers doesnt go up.In other words,every price hike results in the comission of dealer going down inface in termsof percentage.How can a person like me,run the outlet in such a scinerio?Comment
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i am a new dealer in a psu. Dont lock your land with oil company. there are lot of losses even in product shortage delivered in oil tankers by pilferage (even with supposedly fool proof locks). u make heavy loss and the land will not be released even after 30 years and your children also will be burden by an failing business with so many outlets coming up like chai shops the average sales is very low to make out employee salary and electricity and on top the employees also cheat becuse they handle a lot of cash and one cannot be watching them forever.
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