Price it right

While there is nothing wrong with lower prices, what is wrong is the manner in which the oil PSUs have gone about evolving this differential pricing structure.

In a post-administered pricing mechanism (APM) world, when companies should be moving towards a transparent, market-based environment, oil PSUs sat together and worked out a joint strategy. This, in economic parlance, is collusion and the minister, if and when he gives his approval to the plan, would be giving credence to such corporate strategies.

Yes, transportation is a cost component in the retail price of auto fuels and has to be recovered. But is charging differential prices based on geographical location the only basis for recouping costs?

In a world before APM, if the transport costs were evenly recovered from across the country, in a post-APM world, it should be left to individual oil PSUs to decide what pricing strategy to adopt. Consider this situation whereby consumption in an inland area is substantially higher than that of a coastal location.

Shouldn’t sheer volumes then compensate a corporate for transportation costs? Or, for that matter, if diesel consumption is high along the highways, they can vary accordingly. This, in turn, can be used by a corporate to cross subsidise between fuels and location. In fact, oil companies should be allowed to work out strategies whereby prices vary between pump stations in a city. Or, for that matter, prices can even vary within the course of a day (for instance, between off peak and peak hour traffic, thereby easing congestion on the roads).

Options can be worked out if oil companies are allowed to discard their old PSU mindsets and start thinking like corporate entities.