 India Energy Conference 2008 Product Pricing October 3, 2008

PetroFed & PricewaterhouseCoopers October 2008 Slide 2 Product Pricing & Subsidies Countries price fuels for reasons like collection of revenue or restricting use for environmental control. Many countries price fuels more than India. Transport Fuel Prices in India vis-à-vis Others Source : GTZ, International Fuel Prices 2007 Diesel Price Nov 2006 in US Cent per Litre Gasoline Price Nov 2006 in US Cent per Litre

PetroFed & PricewaterhouseCoopers October 2008 Slide 3 Product Pricing & Subsidies India passes on less price to consumers than in developed world. Worst, the oil companies recover much less out of that. Source: IEA Statistics Energy Prices and Taxes: First Quarter 2008 Comparison of fuel prices across countries Ex-tax price Tax component Note :The term Gasoline as used here refers to the Regular Unleaded Gasoline. Ex-tax Price & Taxes [Q1 2008] Gasoline Diesel

PetroFed & PricewaterhouseCoopers October 2008 Slide 4 Product Pricing & Subsidies Slide 4 UnitsIndiaChina Retail selling price of Gasoline (2004) USD per litre Retail selling price of Gasoline (2008)USD per litre Fob Crude Oil Price (Dubai ) (2004) USD per litre0.21 Fob Crude Oil Price (Dubai ) (2008) USD per litre0.75 Change in Retail selling price of Gasoline ( ) %58267 Change in Retail selling price of Crude oil ( ) %256 Pass-through ratio Comparison of fuel prices- India and China Petrol RSP has not increased with increase in crude prices due to low- degree of pass-through. China, however, has much better pass-through ratio. Source: IEA Statistics Energy Prices and Taxes: First Quarter 2008; PPAC-Oil Prices and Taxes, GoI(2008) The pass-through ratio is the ratio obtained by dividing the % change in RSP of gasoline during the period by the % change in crude oil price for the period

PetroFed & PricewaterhouseCoopers October 2008 Slide 5 Product Pricing & Subsidies Slide 5 UnitsIndiaChina Retail selling price of Diesel (2004) USD per litre Retail selling price of Diesel (2008)USD per litre Fob Crude Oil Price (Dubai ) (2004) USD per litre0.21 Fob Crude Oil Price (Dubai ) (2008) USD per litre0.75 Change in Retail selling price of Diesel ( ) %69169 Change in Retail selling price of Diesel ( ) %256 Pass-through ratio Comparison of fuel prices- India and China Source: IEA Statistics Energy Prices and Taxes: First Quarter 2008; PPAC-Oil Prices and Taxes, GoI(2008) The pass-through ratio is the ratio obtained by dividing the % change in RSP of diesel during the period by the % change in crude oil price for the period In case of Diesel as well, China has not hesitated from passing on the cost of crude oil to consumers.

PetroFed & PricewaterhouseCoopers October 2008 Slide 6 Product Pricing & Subsidies Recent BKC pricing committee report has proposed to enlarge the ambit of stakeholders to share the burden and insulate consumers. STAKEHOLDERS CENTRAL GOVTSTATE GOVT.OIL COMPANIESCONSUMERS Burden sharing mechanism Customs Duty Excise DutyDirect taxes Subsidy Upstream NOC/ Nomination block Private players Pre NELP blocks Private players (?) NELP blocks PDS Kerosene Subsidised LPG Subsidised Petrol, Diesel Controlled price/ Capped Other Petro-products Free market price Sales Tax GST (?) Pollution Cess (from Feb 2008) Oil Bonds Refineries & Marketing Public sector Refineries & Marketing (Private sector) Metro Cess Upstream NOC/ Nomination block Private players Pre NELP blocks Private players (?) NELP blocks

PetroFed & PricewaterhouseCoopers October 2008 Slide 7 Product Pricing & Subsidies Source: Petroleum Planning and Analysis Cell (PPAC), GoI (2008) Assistance from Centre is approaching limits and States do need revenues. The imperative is to take tough decision to pass on to consumers. Burden sharing mechanism

PetroFed & PricewaterhouseCoopers October 2008 Slide 8 Product Pricing & Subsidies For healthy growth of oil industry infrastructure and competitive market, GoI must enact milestones for moving to free market pricing in next 3 to 5 years. Allow economic value of fuels to be seen in prices; Bring fuels under classical VAT and in future under GST; Subsidize BPL families through direct subsidy mechanism; OMCs be relieved of financial burden; Agree to market-determined fuel pricing; and Legislate roadmap to market pricing through. Conclusions

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