… govt. maintains status quo 

Thukten Zangpo

The new pricing model for fossil fuel is risking the sustainability of fuel dealers, who have appealed to the government to reinstate three components of the old domestic fuel pricing model.

Of the nine components of fuel pricing model, the erstwhile Ministry of Economic Affairs brought down the prices by removing the three components: return on working capital, transit insurance, and financial charges when the fuel prices reached the record high of over Nu 100 per litre in June last year. The ministry also fixed the dealers’ commission at Nu 1 per litre of fuel from 1.5 percent of the cost.

The fuel dealers also stated that they have complied with the ministry’s decision showing their support and solidarity in reducing the inflation and prices of commodities since the prices of fuel were extremely high. 

The State Trading Corporation of Bhutan (STCB) wrote an appeal letter to the Industry, Commerce and Employment Minister Karma Dorji on April 22 this year to revise the POL product pricing structure. 

It stated that restructured pricing with effect from June 2 last year has immensely affected its profitability and impacted the business heavily.

“The significant reduction of dealer commission and withdrawal of three components–return on working capital, transit insurance, and financial charges has not only impacted our profitability but also ambition to make the fuel outlet best in the country in terms of service quality and cleanliness with free drinking water and toilet facilities,” it added. 

The fuel dealer asked the ministry to increase the dealers’ commission from Nu 1 per litre to Nu 2 per litre given the reduction in fuel price. 

The Chief Executive Officer of the STCB, Tshering Wangchuk said that the independent committee was formed to study the fuel pricing. “We are waiting for the independent committee’s decision.”

Additionally, he said that with an anticipated salary hike for the company, increase in land lease with revision in property tax, and hike in tankers’ price between 35 to 40 percent, everything has become expensive. 

“The sustainability of the business has become a concern for us,” Tshering Wangchuk said, adding that the three components have to be reinstated.

Justifying, he said that the company has to pay interest for the borrowed money (that is return on working capital), insurance for tankers and fuel (i.e. transit insurance), and financial charges.

“The construction cost of each fuel retail outlet is approximately Nu 20 million and the pay-back period is at least 15 years with the current pricing structure,” Tshering Wangchuk said.

He added that the government’s fixed dealers’ commission at Nu 1 per litre of fuel would not remain the same because of the purchasing power parity of money where the value will decrease. 

“With the government policy to revise the price after every 5 years, the company will not earn anything at one point in time,” Tshering Wangchuk said. 

Similarly, the General Manager of Damchen Petroleum, Karma Yonten said that the dealers are yet to hear from the government on this matter. 

However, MoICE Minister Karma Dorji said that the ministry consulted with the POL dealers and arrived at the decision to maintain the status quo which is Nu 1 per litre commission and no working capital. He added that the decision was taken and implemented two to three months ago.

If the dealers’ commission is increased to Nu 2 per litre, the fuel price will rise by Nu 2 per litre. This means a litre of petrol will reach Nu 67.74 and Nu 69.54 for diesel.

A civil servant said that fuel is the main cream that runs the whole business. He added that an increase in fuel price has direct implications on the prices of commodities as fuel is essential for transport of goods and commodities and increase in fuel price increases prices of commodities.