Monday, June 9, 2008

Crude and rude...

"Nobody fleecess you like the government, and you look to fleece the government like nobody else" - said a wise man (ahem) once.

As of today, an Indian in Mumbai pays about INR 55.88 per liter of petrol. The left parties, the only party that thinks in India, declared a bandh to protest this hike. How inventive! And why didn't anyone else think of that? Strike work and the prices come back to normal... simple, innit? But no, the big, bad government saw through their trick and refused to bring down the price. Why? This is what I'm trying to answer today.

Now, readers, please let me know if I'm going wrong. Chandu and I tried this once (incidentally when the crude price touched $100 a barrel) and were a bit embarrassed thinking we got it wrong...

For all calculations here, I am using market close data of June 6, 2008. That fateful day, the price of crude was $138.50 per barrel and the Dollar was trading for 42.89 Rupees.

On all days, 1 barrel = 31 gallons and 1 gallon = 3.7854118 liters. Therefore, 1 barrell = 117.347765 liters.

Now, on to the calculations:

1 barrel crude oil costs USD 138.50 or INR 5940.27 (138.50 * 42.89)

so, 1 liter crude oil costs INR 50.62 (5940.27 / 117.347765)

Depending on the purity of crude and the refining process used, you get anything ranging from 30% to 70%. (You get up to 70% if you use light crude and advanced catalytic or hydro or thermal cracking, alkylation, polymerization or what not.) So I'd be safe (and quick) to assume a yeild of about 50%. Which means if you buy 1 liter of crude, you get only 1/2 liter of petrol.

Thus, the 'cost' of 1 liter of pertol is INR 101.24

Now, add to this those delightful miscellanies that WE have to pay so happily each time we buy petrol (or anything for that matter) like VAT, custom for crude, custom for petrol, sales tax, octroi, education cess(!??!!) etc., and other stuff like dealer commission, transportation, and what do we have? The 'sell' price of around INR 150 per liter (this is being extremely optimistic and assuming only about a third of the duties and stuff..)

So, the government loses about INR 100 per liter of petrol sold at today's price! Well, let's put this into perspective. According to this study, in Delhi, with over 466 signalized intersections, 3,21,432 litres of Petrol is being burnt every day due to the idling of vehicles. So, the government spends INR 32 million (3.2 crore rupees) daily only on idling cars in Delhi. Another very optimistioc assumption I shall hazard here is that the whole nation consumes only 1000 times of the petrol that is 'idled' away in Delhi. That translates to a loss of about INR 32 billion (3,200 crore rupees) loss for the government in a day. And about INR 11,688 billion (11,68,800 crore rupees) a year! Whew...

Disturbing, isn't it? I sincerely hope I'm making some mistake in my calculations here... Someone please tell me I'm wrong...

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