The ministry refutes special audit findings
Trade: Officials from the Ministry of Economic Affairs refuted the findings of the special audit on the inadmissible charges of home delivery cost and unjustified inclusion of depreciation costs in pricing of liquid petroleum gas (LPG), at a press conference yesterday.
The Department of Trade will respond to the audit findings by the end of this month.
Joint secretary Sonam P Wangdi said that the government had fixed the pricing for LPG. “We don’t believe the findings and it is a mistake,” he said. “The pricing is approved by the Cabinet and not fixed by an individual.”
A special audit report released in May this year found that over the last 15 years, between 1999 and 2014, the distributors – Bhutan Oil Distributors/Bhutan Oil Corporation (BOD/BOC), Druk Petroleum Corporation Limited (DPCL) and Damchen Petroleum Distributors (DPD) collected loading and unloading cost of LPG cylinders worth Nu 29.11 million (M) from the consumers.
Consumers, the special audit found, were charged Nu 4 a refill from 1999 – 2000 and Nu 5 a refill from 2001 onwards. For each LPG cylinder, the distributer charged more than Nu 75, the report stated.
The Royal Audit Authority (RAA) also found that the distributors over the same period had collected Nu 112.11M as home delivery charges without actually providing the services. The dealer’s commission of additional 15 percent on LPG had always included establishment and home delivery charges.
As per the report, inadmissible charges of home delivery were imposed on consumers until October 22, 2014 when the Ministry of Petroleum and Natural Gas, India, had revised domestic LPG distributor’s commission. The department of trade fixed the price without including home delivery charges on November 5 bringing down the price of LPG cylinder from Nu 508 to Nu 491.
At the press conference yesterday, trade officials reasoned that the charges of home delivery cost in pricing of LPG was composite since the introduction of LPG in the country. A differentiated rate was introduced after such a pricing was received from Indian Oil Corporation Ltd (IOCL) in November last year.
However, the price is subject to a task force review, officials said.
The RAA had asked the trade department to recover home delivery charges from the three distributors and deposit the amount into the Audit Recoveries Account.
According to trade officials, the depreciation cost in pricing of LPG is part of the approved price since the introduction of LPG in the country.
“Depreciation is a replacement cost under the generally accepted accounting practices,” a trade official said. “The dealers have not charged separate replacement cost to any user and therefore, it is legal within accounting concepts.”
The audit authority found that the distributors had 74,460 expired cylinders in circulation posing threat to lives and properties. The standard life span of an LPG cylinder is 10 years. Besides LPG, the RAA found that more than Nu 251.37M worth of revenue was foregone over the last six years through kerosene (SKO) at subsidised rate to the Indian communities and business units in the border towns of Gelephu and Samdrupjongkhar.
In response to the RAA findings, the department’s regional offices since July 1 ensured that expired cylinders were no longer in circulation.
The economic affairs ministry has also initiated the formation of a multi-task force to review the entire PoL pricing structure and other elements associated with PoL sectors.
Following an extensive deliberation on shortage of LPG and kerosene at the National Council’s 13th session, five resolutions were passed to the relevant agencies and the Royal Audit Authority was asked to conduct a special audit on import and distribution of LPG and SKO.
Sonam P Wangdi said there has been a huge improvement in the POL sector since 2003 in terms of coverage, supply of quality product and reliability. “Pricing of PoL products is based on the Indian framework and moderated to ensure the most affordable price to consumers and viability of the dealers,” he said.
He also added that in 2013, the BOD and DPCL earned a profit of Nu 34M and Nu 6.3M respectively while DPD suffered a loss of Nu 12.5M. Compared to the turnover of Nu 8 billion, the profits are extremely low.
Trade officials also pointed out that the margin of two percent of invoice price for the dealers is one of the lowest in any industry and the prices of PoL products in the country is lower when compared with those of West Bengal and Assam.
Officials said that in December 1999, the Cabinet approved the pricing structure after which an independent consultant reviewed it and approved by the ministry in 2009.
The Indian government has allocated a quota of 1,250 kilolitres a month to Bhutan through the IOCL, which is distributed in the country through the three dealers.