The great Indian oil trick: under-recoveries overstated 15%

The optimum or "desired" selling price is calculated assuming that the fuel is imported and then processed, transported and marketed when in fact imports accounted for 3 per cent of petrol consumption, 6 per cent of diesel consumption and a quarter of cooking gas and kerosene consumption.  The oil marketing companies calculate the under-realisation of fuel sales by taking the difference between the market price of the fuel and the subsidised selling prices. The market price is benchmarked to the price of the fuel on the Singapore exchange to which expenses such as freight, insurance and customs duty are added.  Refinery margins and processing charges are then added to this to make up what is called the refinery gate price, which is the price at which the refinery sells the fuels to the oil marketers.  The refinery gate price is calculated only for the four subsidised fuels irrespective of whether they are imported or not.  The oil marketers then add transportation charges, marketing margins and dealers' commissions to the refinery gate price to arrive at the desired selling price of the fuel.  "There is an anomaly in this calculation as the country imports only a small fraction of the petrol, diesel, cooking gas and kerosene it needs. Since there are negligible imports, import costs should not be added to calculate the under-recoveries," said an analyst with an advisory firm.  "We follow the government's policy for calculations. Prices are calculated at international market rates and the price at the refinery gate is the international market price for us," said a spokesperson of Indian Oil Corporation (IOC), the largest of the three government-owned oil companies that sell subsidised products.  A senior official of another oil marketing company