Fuel prices expected to drop from June 1

The MoEA has already submitted the proposal to the MoFA to take up bilateral agreement between two governments of Bhutan and India for POL products supply

The fuel prices in the country are expected to plummet as the Ministry of Economic Affairs (MoEA) has revised the pricing structure and the new pricing structure will come into effect from June 1. 

Economic Affairs Minister Loknath Sharma said, “The new pricing structure is expected to lower the rising fuel prices by some nominal.” 

According to the MoEA, the fuel prices charged for Bhutan by the Oil Marketing Companies (OMC) are based on the international commodity prices, which is the moving average prices of petrol and diesel in the last 14 days. 

“The import price for Bhutan consists of two components – invoice price and delivery charges. This is the bulk selling price of fuel by the OMCs and includes delivery charges of Nu 1.5 per liter for transportation from the supply point in Siliguri (NJP) till our border point in Phuentsholing,” Lyonpo Loknath Sharma said.

The minister also revealed that the ministry has reviewed and discussed with dealers and stakeholders about the pricing components for determining retail sale price in context of the current situation and after being cognizant of rising fuel prices and transportation cost.

“This report has been deliberated in the ministry, discussed with dealers and stakeholders and is finally adopted for implementation,” the minister said.

According to the ministry, there is a Memorandum of Understanding (MoU) signed between the Department of Trade (DoT) and Public Sector Undertakings (PSUs) in India for supply of Petroleum, Oil and Lubricants (POL) products to Bhutan. This was last signed in 2016 and has been extended on an annual basis due to the pandemic situation. The MoU provides a general guidance on the supply of POL products to Bhutan ensuring quality and uninterrupted supply based on the two government’s understanding.

“Although there is a separate agreement signed between individual dealers and principal companies as per the above MoU, principal oil companies have reserved sole authority to charge any rate deemed appropriate,” said the Economic Affairs Minister.  

Lyonpo added, “For instance, it states that price of petroleum products supplied in terms of this agreement and payable by the dealers shall be in accordance with the Indian Oil Corporation Limited’s (IOCL) rates as applicable on the date of supply.”

Further, the same agreement states that the facilities/infrastructure support extended such as storage tanks and dispensing units shall be provided by the IOCL at free of cost and no cost will be recovered.

However, according to the ministry, it is not clear in the absence of detailed break up, whether costs for such structures are being built in the invoice price or not.

While Bhutan is exempted from Indian excise duty and other state levies, the prices of fuel and POL products in Bhutan are directly impacted by global crude prices, foreign exchange rate (Rs. vs USD) on import of crude oil prices and related processing and distribution costs incurred by the refineries.

The Minister said, “Bhutan being the price taker when it comes to POL products, any increase in global crude oil prices leads to rise in fuel prices and vice versa.”

Meanwhile, oil prices have been on the rise ever since the start of the Russia-Ukraine war as Russia makes up for a third of Europe’s natural gas and about 10% of the global oil production.

Meanwhile, since January this year, the prices of fuel have increased from Nu 72.89 per liter for petrol and Nu 67.30 per liter of diesel to Nu 97.00 and Nu 111.88 now respectively.

According to the MoEA, it has submitted the proposal to the Ministry of Foreign Affairs (MoAF) to take up with the Government of India (GoI) bilaterally to negotiate an agreement between the two governments for POL products supply.

Sherab Dorji from Thimphu