Parity Pricing of petroleum products in India
Refining of crude oil involves conversion of a single input to multiple finished products with different market value and chemical properties, thereby making it difficult to determine the cost of production of each individual product and hence its pricing.
Under the current pricing mechanism in India, the Refinery Gate price (RGP) is the price at which product is transferred/sold from refinery to marketing division of Oil Maketing Companies (OMCs). The RGP of Diesel is currently based on Trade Parity Price (TPP) consisting 80% of Import Parity Price (IPP) and 20% of Export Parity Price (EPP). The RGP of Domestic LPG and that of kerosene sold in the public distribution system is based on IPP as provided in the Kerosene and Domestic LPG Subsidy Scheme, 2002’.
Import Parity Price (IPP) – IPP represents the price that importers would pay in case of actual import of product at the respective Indian ports and includes the elements of Free on Board (FOB) price + Ocean Freight + Insurance + Custom Duties + Port Dues, etc.
Export Parity Price (EPP) – EPP represents the price which oil companies would realize on export of petroleum products. This includes FOB price + Advance License benefit or ALB for duty free import of crude oil pursuant to export of refined products. Consequent to abolition of Customs Duty of Crude oil effective 25.06.2011, the ALB is currently zero.
Trade Parity Price (TPP) - TPP consists of 80% of Import Parity Price and 20% of Export Parity Price.
A brief background note on petroleum product pricing in India and recommendations of various earlier pricing committees is contained in Annexure 2 of the Report of the Expert Group to Advise on Pricing Methodology of Regulated Petroleum Products which submitted its report in October 2013.