Deregulation of retail oil prices

Abstract

Petroleum product pricing in India has been one of the most debated topics in India’s corporate andbureaucratic avenues in the past decade. The sheer magnitude of this decision can be realized fromthe fact that it affects daily operations of everyone ranging from industries to householdconsumption. Historically, government has intervened in the pricing decisions to insulate domesticeconomy from volatility of oil prices. Reducing exposure to international price volatility also aimed atdeveloping expertise in domestic level for local resources, so that an environment conducive to theirgrowth is in place. However, in the past decade, oil prices have increased and fluctuated beyondanyone’s speculations. Government intervention in such circumstances is synonymous to makingdecisions with ignorance about happenings in the global market, and is hence unsustainable in longterm. The Government’s efforts to insulate domestic consumers from oil price rise until now, at leastto some extent, has resulted in huge fiscal burden for the Government and financial problems for thepublic sector oil marketing companies.The government claims to have realised the importance of de-regulation in the retail prices ofpetroleum products. They have been trying to put de-regulation in effect since 1992 through variouspricing regimes starting from APM to Parity pricing and full de-regulation. But, deregulation has notbeen completely put into place owing to various policy complications and other political motives. Inthe current state of affairs, deregulation has been announced but implementation has been a bigissue with various political and administrative factors affecting it.This research aims at devising a method of pricing and coming up with an exhaustive list of factorswhich could serve as a guide for Oil Marketing companies when the de-regulation of retail-priceswould be put into place. We have come up with various factors which will affect retail pricedetermination at a retail outlet for the consumer. Since policy revision and implementation fromgovernment is a complex affair governed by externalities of politics and bureaucracy, we haveneglected their effect altogether. The data analysis presented in this report has been backed by the opinions of Finance and StrategyMangers of HPCL, Mr Rejith M Rajan and Mr Pyush Jain through a series of primary telephonicinterviews. Rest of the data has been collected through secondary research from online contentavailable on the internet.