Deregulation of Petroleum Prices w .pptx

Deregulation of Petroleum Prices

1. DEREGULATION OF PETROLEUM PRICES

2. DEREGULATION OF POL PRICES The composition of oil prices consists of three factors Cost of refining crude oil – base price State and central tax Dealer commission Deregulation of petroleum product prices has it advantages and disadvantages which are debatable and dependent on the OMC based on its market share and business relationship with the stakeholders. How it affects each arm of an Oil Marketing Company is stated hereunder. 2

3. SUPPLY CHAIN The deregulation of POL p rices will have direct impact on procurement sources. Increased dependency on local refineries to cater regional demand in the refinery envelope areas will impact sales. Following concerns are to be addressed prior price deregulation Bases of ex-refinery prices Mechanism for RON penalty, HSD premium and other adjustments which are covered under IFEM adjustments 3

4. SALES As demand-supply factors are not the only things affecting petroleum prices but also government taxes have a major chunk in the pricing, complete deregulation is an overstatement. Price war or cartelization – either excessive price competition to enhance sales or, on the other hand, risk of monopoly/ oligopoly Difficult to push sales to far flung areas as there will be no freight compensation of any sort 4

5. LOGISTICS AND DISTRIBUTION Deregulation of POL prices means that freight component of pricing will have no governance rendering the current IFEM mechanism to be extinct causing considerable difference in petroleum prices in the south; which is considered the source, as of now; and north. ICFS recoveries under IFEM mechanism to be affected, impacting the OMCs negatively that are in a receivable position Cost of supplies to special freight areas to be exceedingly high as currently it is covered under IFEM regime No check and balance for transportation sector – no physical reporting mechanism. 5

6. LOGISTICS AND DISTRIBUTION No restriction in movements (up-country and down-country) Negotiated freights based on business relationship Increased pipeline movement for lowering imported product transportation 6

7. RECOMMENDATIONS Considering the price-sensitive consumer sentiment regarding petroleum product, deregulation of prices and free-hand to OMCs on the matter will not only take some time to get traction but also will be a cumbersome process. Below are some recommendations on the said deregulation Dynamic regulation model Fixed upper or lower threshold of OMC/ dealer margins 7

8. THANK YOU 8