Expecting prices of fuel will come down but may not to pre-increased level: Economic Affairs Minister

In Thimphu, petrol is now Nu 95.19 a liter and diesel Nu 100.55 a liter

Will Bhutan benefit from the deal that the Indian government struck in recent days for 3mn barrels of crude oil from Russia for delivery in May with the Russian crude being offered at around 20% below the global benchmark price?

Talking to Business Bhutan, Economic Affairs Minister Loknath Sharma said the export price of fuel from India has direct relevance to import price of crude for India and sourcing crude at discounted rate by the government of India is expected to stabilize fuel price.

“However, the extent to which the prices of fuel will decrease from the current prices is difficult to determine because other factors such as foreign exchange, the 14-day moving average of the landed product price from the international market, processing costs, and transportation costs to the border must also be considered. We expect the prices of fuel to fall, but perhaps not yet to the level before the increase,” the minister said.

The fuel price is set by major oil companies on the day of delivery and the fuel price in Bhutan comes into effect every two weeks. The price of fuel is composed of the cost of crude oil and the refinery’s processing costs.

The existing MoU benefits Bhutan in terms of having assuring supply from the oil manufacturing companies and delivering till the border at the price agreed between the oil companies in India and dealers in Bhutan.

The global price fluctuations are controlled to some extent by having an understanding to apply the same rate for a period of 15 days, which saves from daily price fluctuations as it is not practical to effect price on daily basis in Bhutan since the ferrying of fuel to other districts’ outlets from the border takes more than a day to reach the retail outlets.

 Similarly, there is also a predictability of price for at least two weeks’ time for the dealers as well as consumers in Bhutan. This practice is also adopted by GoI with their crude trading partners foreseeing benefits.

 Bhutan also benefits in getting unblended petrol at the price of blended as ethanol blended is much cheaper than non-blended petrol. Bhutan imports not blended only and due to low volume of imports we are charged the same as ethanol blended. Petrol users are benefited.

Fuel prices hit a new record high after 12 am on March 17. The price of petrol increased by more than Nu 10 per liter in Thimphu, while diesel’s price increased by more than Nu 17.  

As of March 16, the price of petrol was Nu 84 per liter and Nu 83 per liter for diesel, but after the hike, in Thimphu, petrol is Nu 95.19 a liter and diesel Nu 100.55 a liter. 

Talking about the repercussions of the hike in fuel prices on the economy and the inflation rate in the country, Lyonpo Loknath Sharma said that the hike in fuel prices will have cascading effect on the overall prices of commodities due to higher production and transportation cost and will affect the affordability of the consumers, particularly those in the low-income bracket.  

“The increase in fuel prices will further fuel inflation in all goods and services, hitting and hurting all consumers and increasing the cost of living. It is estimated that a 10% increase in inflation within three months will result in a 5% inflation rate in our economy, and we are already facing high inflation in food and other goods,” Lyonpo Loknath Sharma said.  

Meanwhile, the People’s Democratic Party (PDP) released a press release outlining some recommendations for the government and answering to it Lyonpo said that the government is cognizant of the fact that limited tools are available to address fuel price in the country.

“Bhutan does not have excise duty, VATS kind of taxes except very little surcharge and 10% tax. We welcome the suggestion made by the former government and the concerns expressed,” he said. 

Talking about the solutions in hand when there is a hike in the prices of fuel, Lyonpo said that the government has very limited tools at hand and those are lifting taxes and charges which will bring the cost down by 10.55% approximately, while the other one is to inject direct subsidy covering the gap of increase.

“We are working to bring the most doable intervention as immediate as possible. In our system any changes in taxes have to be through parliamentary process as well,” he said.  

Currently, the government has a Memorandum of Understanding signed with major Indian oil companies that fuel will be supplied at four entry points in Bhutan, including Phuentsholing, Gelephu, Jomotsangkha, and Samdrup Jongkhar.

The government imports fuel only from major Indian oil companies, namely Bharat Petroleum Corporation, Indian Oil Corporation Limited, and Hindustan Petroleum Corporation Limited.

Chencho Dema from Paro