Fuel rates are revised everyday at 06:00 AM in India, and this is called as Dynamic Fuel Price Method. This makes sure that variations of global oil prices throughout the day are transmitted and reflected to fuel users and dealers.
Let us understand few terms before understanding how the fuel price determination works:
Oil Refineries
These refineries buy or extract crude like WTI (West Texas Intermediate) Crude, Brent Crude, OPEC Basket crude, etc. and convert these crudes into petrol, diesel, aviation turbine fuel, Biofuels, etc.
Examples of such refineries are Reliance Industries, Nayara Energy, Bharat Petroleum, Indian Oil, Shell, ONGC, Saudi Aramco, etc.
OMC (Oil Marketing Companies)
These are the companies who market the converted crudes (petrol, diesel, etc.) to dealers and ultimately to users.
Examples of such refineries are Indian Oil, Bharat Petroleum, Shell, Essar, etc.
Dealers
Dealers are the People who are engaged into the business of buying fuels from OMCs and distributing them to users. They are distributors of fuel.
Example: Arvind Patel and Pravin Patel are distributors of cars of Maruti Suzuki Co., they are called dealers of the company and runs the business known as ‘Patel Motors’.
In the same way when we see a fuel outlet, it belongs to some dealer. (In rare cases, company may serve their fuels to the public directly if they feel fuel prices are too high so they should cut-off the dealer’s commission)
Users: WE are the users of fuel for our vehicles, also the airplane transport companies who buy the aviation turbine fuels from OMCs directly to keep their planes flying through the skies.
How does the Retail Fuel Price Mechanism work?
Price at which Dealers buys from OMCs
Add: Excise Duty (Central Tax levied on certain goods)
Add: Dealer’s Commission
Add: VAT (Value Added Tax) (State Tax which may differ from State to State)
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= Retail Selling Price of Fuel
(Interesting Fact: The amount you are paying for 1 Liter fuel consists of average 70% taxes)
How can the Government control Prices of Fuels?
- The central government’s tool to control the prices of fuel is Excise Duty.
- The state government’s tool to control the prices of fuel is VAT.
Who is the official regulator of Fuel prices in India?
Apart from taxes, the Central Government regulates the prices of fuels through base prices and cap prices at which dealers and OMCs deal with each other, decided by PPAC (Petroleum Planning and Analysis Cell) under the Ministry of Petroleum and Natural Gas. One can find constructive information about the current fuel prices of Indian Basket on its official website (i.e. https://www.ppac.gov.in/).
Apart from this, there are many licenses, regulations, laws applicable to refineries, OMCs, dealers, etc. and after passing through all these processes we get our tank filled with the fuel.
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