COST ANALYSIS OF OIL

INDUSTRY IN INDIA
By:
Aashir Agarwal (10FN-001)
Piyush Goel (10FN-076)
Ravi Bhambhani (10DM-123)
Rohan Dawani (10DM-124)
Rohit Anand (10FN-096)
Sanjay Rughwani (10DM-137)
Energy consumption in India
Changes in crude oil prices
over the last 10 years
Proposed retail prices in Delhi
with the changing crude prices
Under recoveries of OMC’s and
role of subsidy
Price control or price setting by
the government
Administered Pricing Mechanism


• The upstream companies in India were

compensated for their operating expenses and
allowed a 15% post tax return on their capital
employed.
• The downstream companies were also
compensated for their operating expenses and
allowed a 12% post tax return on their capital
employed.
• Cost plus formula used.
• Dismantling of this mechanism from 1st April
2002.
 Import parity pricing and Trade
parity pricing
Import parity pricing:


• Price is set at the opportunity cost of a unit of an

imported substitute good.
• The OMCs adjust their product prices
automatically and periodically during a three-
to-five year period following the dismantling of
the APM.
• The main disadvantage of the system was steep
rise in international crude prices.
• Export parity pricing is a pricing policy adopted
by suppliers of a good for their sales to
domestic customers so that the price is same
for the domestic customers as it is sold to the
international customers.(converted in domestic
currency)
Trade parity pricing


• This price setting mechanism was implemented

because the OMCs were incurring huge losses
because of the increasing crude prices as the
Indian government was not ready to increase
the retail prices accordingly.
• Weighted average of the import parity and export
parity prices in the ratio of 80:20.
• Customs duty on petrol and diesel was reduced
from 10 per cent to 7.5 per cent.
•
Calculation of Petrol and Diesel
prices
• mac presentation calculations.docx
 Recent Developments in the
Indian Oil Industry
(Deregulation
th
of oil prices)
• On 26 June 2010 petrol price has been increased
by Rs.3.50 a litre making it in-line with the
current prices of crude (complete deregulation).
• For diesel the hike is Rs. 2 a litre, which is around
Rs.1.50 less than the market-linked price
(partial deregulation).
• Under recovery minimization of OMCs
• Entry opened for private players.
• The high competition will lead to good service
and good quality from the OMCs
• In long term this decision reduces our long term
debt and fiscal deficit.
•
Thank You