The economic affairs ministry (MoEA) has revised the domestic price module for imported fossil fuels which comes into effect today.
The domestic price module is a price mechanism for fuel that is charged by the local fuel distributors after it reaches the country. It was developed in 2016.
There is a certain formula to calculate the fuel price that also takes into account the shrinkage cost, fuel shrinks and evaporates in depots and leakage during transport, and transportation costs.
Economic Affairs Minister Loknath Sharma said that there are three price factors. One is domestic pricing, where the fuel price changes on the 1st and 16th day of every month.
Lyonpo said that in the domestic pricing mechanism there are some things which could be omitted and the ministry has the authority to revise it.
“The ministry has re-visit the domestic pricing module and made some changes. The concern of increased transportation cost has also been taken into consideration,” Lyonpo said.
“It is a standard international formula,” he said.
Lyonpo said that fuel distributors have submitted for the revision of fuel pricing and it was supposed to be revised in 2020. The ministry has not considered the revision because of the pandemic since the revision will be upward.
Lyonpo said that now the fuel price has become inevitable and transportation cost has been rising. “Therefore, the ministry re-visited the formula in an appropriate manner so that it takes care of fuel pricing once it reaches Bhutan.”
Lyonpo said that the ministry has to re-visit the price because some of the other costs are given unnecessarily which is confirmed profit to the dealers.
The ministry has proposed numerous interventions like waiving taxes to the Cabinet to reduce fuel prices.
The People’s Democratic Party (PDP) has also recommended instituting a fuel price stabilisation measure immediately to bring down the fuel cost. The measure should incorporate waiving of the 5 percent green tax, the 5 percent sales tax and surcharges levied presently.
Lyonpo said that even if the government waived off 10 percent taxes, it would not come to the normal price as before. “The impact will be there if we are able to bring it down to the earlier price of around Nu 80 per litre.”
“It would forgo the revenue of approximately Nu 900M from doing away 10 percent tax in a year. It will not have a major impact and it will lose revenue only,” Lyonpo said.
Meanwhile, the ministry has also submitted a proposal to the ministry of foreign affairs on ways to reduce fuel prices for Bhutan and take up with the Government of India (GoI).
Lyonpo said that two ministries are still discussing how they can communicate with GoI.
Lyonpo also said that the Indian government has no authority over the pricing of fuel and it is the Public Sector Undertakings (PSU) that changed the prices of fuel.
Recently, the government has noticed that the fuel price that comes to Bhutan is booked under bulk pricing. Bulk pricing is higher than ex-factory price by more than Nu 10 for both diesel and petrol.
“Our request is that if we can communicate to GoI and if they can assist us to discuss with PSU or give a price module that is more favourable pricing,” Lyonpo said.
India also follows bulk pricing for railways, big transport companies and big companies.
Lyonpo said that since our requirement is very less if our pricing for fuel is other than the bulk pricing. It doesn’t mean that we want subsidise fuel price, but at least some favourable pricing mechanism.
“It is not that it will reduce the prices immediately,” Lyonpo said.
Lyonpo mentioned the government is also possibly looking at signing MoU directly with GoI on fuel because it is a very essential commodity in Bhutan.