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Bhutan sees highest petrol price hike ever

Publication Date : 25-05-2012

 

In what would be the highest hike ever, Bhutans' petrol prices are expected to increase by around 7 ngultrum (US$0.12) a litre, influenced mainly by a weakening rupee against the US dollar.

Indian oil companies revised petrol prices by 7.5 rupees ($0.13) a litre from midnight yesterday.

"We’re not sure by how much it’ll increase in Bhutan, but the rate will be slightly lower, or more or less the same,” trade director general Sonam P Wangdi said, adding that the new rates for Bhutan will come into effect 24 hours later than India.

A trade official said that Bhutan will probably receive the invoice from the Indian oil companies by this morning, and the revised rate will then be punched in the pricing system.

This could take price of petrol in Thimphu to more than 67 ngultrum ($1.2) a litre. The existing price in Thimphu is 60.26 ngultrum ($1.0) a litre.

The hike comes at a time when the rupee has hit a record low at 56 rupees a dollar. Trade director general Sonam P Wangdi said the Indian government had requested oil companies in India not to increase petrol prices since November end last year. Petrol price was last revised in December 1. “Earlier, the revision was made almost on a monthly basis,” he said.

Given the weak rupee against the US dollar, Indian oil companies have been losing out almost 8 billion rupees ($144 million) annually.

India relies heavily on crude oil imports. Almost 70 per cent to 80 percent of its crude oil is imported. When the dollar strengthens against the rupee, oil companies land up paying more to import crude oil, and run into losses when a rising US dollar is not supported by an increase in the price of petrol.

Despite downgrading India’s GDP growth to 8.2 per cent from 9 per cent earlier, Indian media quoted that the target is still not likely to be met. Quartery GDP slowed down to 6.2 per cent in December 2011 from 6.9 perc ent in the preceding quarter.

Due to the poor economic performance, coupled with rising inflation, external demand has weakened and led to huge dollar withdrawals by foreign institutional investors, creating a dollar scarcity in India.

A local economist said that Indian private sector and corporates had huge borrowings from European banks. With the Eurozone crisis again looming, banks in Europe are demanding their money back, and this had also created dollar scarcity, and consequently pushed demand for the dollar within the Indian economy.

"In recent times, India’s economy has been perform- ing poorly, with huge current account and fiscal deficit, leading to a weakening business confidence and foreign investment in the country,” he said.

Prices for other fuels, such as diesel and cooking oil, have not changed. In Bhutan, revised petrol prices will differ from place to place, depending on the transportation cost, with it being cheapest at the border towns, which are closer to the Indian refineries.

Bhutan is entirely dependent on crude oil imports from India. Bhutan’s petrol import from India was worth 694 million ngultrum ($12.4 million) in 2009, it increased to 951 million ngultrum ($17.1 million) in 2010 and 1.3 billion ngultrum ($23 million) last year.

 

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