An inquiry into why Fuel Prices are on the rise

I have wanted to write this particular blog entry for a long time. I believe the date to be 12th Jan 2008. It all started when a friend and colleague forwarded a chain mail. Chain mails are sent by people you know and thought were sensible. Most chain mails are relatively harmless as they ask you to send money or send postcards to fictitious kids with terminal illnesses. They are easily ignored. But this one exhorts the recipients to mobilise for action, so it merits a little more attention.

I do not comment without studying the entire picture, and it took me time to analyze current trends, consider past data, read on the subject and reach my own judgement. The chain mail I received from my friend goes as follows:

****** Hi everybody,
Petrol in Pakistan Rs 17 per litre. Malaysia Rs 18 per litre. In India it's 51 per litre
--------------
REMEMBER: JANUARY 24, 2008.... NO Petrol Day...! (First time, if my memory is sharp, it was 22nd September 2006).
Please "Think Of It ...............********

I guess all of you who would have received this forward. If not, please let me know as I still have a copy of the same.

People are angered by the fact that petrol prices in India are higher than those in Pakistan and Malaysia. The e-mail asserts that this can’t be simply because of crude oil prices. The villains, according to the email, are “the oil companies” who are presumably fleecing the Indian people. So it calls on everyone (in capital letters to compound the irritation) to boycott the petrol pumps on a given day and make the companies lose 4.6 billion dollars in one day.

I guess who ever wrote the email is mad and very mixed up. We should remember that Malaysia is an oil producing country. Pakistan has the use of its own natural gas in addition to the oil that it imports (and that the Saudis subsidised until recently). India heavily relies on oil imports, which means that rising prices of crude oil have a much sharper impact on India than in countries that rely less on imports.

Another colleague of mine wrote in reply to the email forwarded by my friend, which goes as below:

"I don't agree to this.
Even those who agree this would either dump enough of petrol on the day before or will buy extra petrol on the following day. Oil companies will get their fruits anyways.

The bitter truth is we are highly addicted to automobiles and comfortness. Anybody who owns a bike is not ready for a 5-10 minute walk, even to a nearby grocery shop or a friend's house. All want to spring on bikes and reach there burning petrol. Oil companies understand our demand and grow greedy to put hefty prices on our heads. They are utilizing our laziness and earning money out of it. Everyone of us are feeding these oil companies, who in return stamp on our head.

Our demand on petrol should decline. Not lasting for a few hours but forever. It should panic the oil companies to throw their greed on making hefty profits out of us and to reduce the prices down.

I wonder why the Government never regulate this and keep on increasing the prices in favour to the oil companies.

So, no petrol day is not going to bring any changes. However, I appreciate the idea behind this. But please think practically and work on ideas that will make a permanant fix. The idea is simple and is in front of our eyes. Let us reduce our demand on Petrol. "

Perhaps, my friend should have given more thought on the cross subsidy system that is effected by the Govt of India. If he has considered those aspects which many of us tend to ignore, then his comments would have emerged as an authentic one. I wish, he would research the subject before commenting on it, in future."

Here's what I got to say:

Here are a couple of reasons why petrol prices are higher — India’s petroleum industry is not fully open to competition and its government subsidises diesel, farmers, railway passengers and others.

And here’s something that may surprise the author of the email — petrol retailers make better profit margins when prices are falling gently than when they are rising. In any case, boycotting the pumps on just one day is unlikely to be very effective. People will just buy extra petrol on the previous day.

The crude oil prices have touched $100 per barrel - a psychological barrier and a statistical inanity. India imports about 76 per cent of its crude oil requirements which amounts to an oil import bill of around $50 billion every year.

According to information available on the net, India’s crude oil import bill rose by 3.48% in rupee terms and 16.67% in dollar terms during the first half of the current fiscal year. The appreciation in rupee value by 12.3% this year, the most since at least 1974, has helped partially offset the sharp rise in global oil prices. As per the Government, every one rupee appreciation in the exchange rate of Indian rupee against US dollar will help reduction in the net oil import bill by around Rs 3950 crore. It should help that the rupee is forecast to advance 3.4 percent next year to 38 per dollar by the end of December, according to the median estimate of 22 strategists surveyed by Bloomberg News.

The gross under-recoveries in 2006-07 by the three oil marketing companies - IOC, BPC and HPC - were Rs 28584 crore for kerosene and LPG, and Rs 20803 crore for petrol and diesel. The estimated under recoveries by oil marketing companies during April- September 2007 have been Rs13814 crores on kerosene and LPG, and Rs 12549 crore on petrol and diesel. If current price trends hold, the under-recoveries to the marketing companies are estimated to be around Rs 70,000 crore this financial year — around o.75% of India’s GDP. This has to be shared between the three marketing companies, the upstream companies - ONGC, Oil India and GAIL - and the government. The upstream oil companies have already contributed trillions to partially compensate these under-recoveries by the oil marketing companies. The contribution by the upstream companies in 2006-07 was Rs 20507 crore and is likely to rise by another 5000 crores in the subsequent years.

As per the government policy of 2003, the subsidy component by the government has remained constant since 2004-05 at Rs 22.58 per LPG cylinder and Rs 0.82 per litre of kerosene. The balance subsidy is provided by the marketing companies from their own pockets.

In 2006-07, the government issued oil bonds worth Rs 24,121 crore to marketing companies for the four products, while it had issued oil bonds worth Rs.11,500 crore in 2005-06 for losses in marketing LPG and kerosene. The government has decided to issue bonds worth Rs 23,457 crores this year, which is not likely to meet the estimated deficits of the marketing companies. If additional bonds are not issued by the government this year, the deficit can only be met by increasing the domestic prices of the products.

Domestic pricing continues to be a politically sensitive topic, with a broad consensus across the political spectrum to stall any upward revision of prices. There is a Group of ministers, chaired by Pranab Mukherjee, to suggest an alternative model for pricing of domestic products.

As with the Indo-US nuclear deal, the left and the right are both opposed to any hike in prices of domestic petroleum products. The government is also worried about the inflationary impact of higher domestic prices of petroleum products. A cut in the customs duty on the crude oil and in the excise duty in petrol and diesel by the government is likely to keep the prices suppressed for some more time.

The subsidies, whether direct and transparent by the government or indirect as in tax cuts, oil bonds and compensation by government owned upstream companies, are a drain on the resources of the government. The losses to the exchequer can only be reduced when the consumer pays the right price for the product.

We also need to consider the term "Cross - Subsidy". As we are aware, the public transport system in India runs on Diesel. High pricing in Diesel would lead to a further high living cost and a higher rate of inflation. To reduce the burden on the common public, petrol is sold at a higher price to subsidise diesel.

I believe that our dependency on and consumption of fuels would never comedown. Everyday, it would go on the rise. We need to look at other available means of sustainable development.

76% of our oil is imported; this was the case with Brazil, whose oil imports have come down to a mere 15%. What did they do? Alternate fuels.. Ethanol.. Our auto industry is expanding; this means more requirement and added pressure for oil imports. By Asking the auto giants to provide flex fuels and manufacture vehicles that can run on ethanol, the Govt can cut costs. This could provide better income to farmers. Biodiesel is also an other alternative..

"Rebuilding the Willis" and its History - A Memorable Experience

I have always been interested in vintage and classic cars and Jeeps, especially off roaders and ex-Miltry vehicles with 4-wheel drive option.

I have learned a lot about jeeps over the past few weeks and have completely disassembled the Willys Jeep and had rebuilt it. Certain parts were hard to come by and I had to buy a few parts from the scrap yards. More important, I have learned many things about the Willys Jeep and vehicles in its class.

As anyone who knows about old Jeeps will testify, these rugged little off-roaders can require plenty of restoration, especially to the body tub, after decades of neglect and/or abuse. Many tend to restore the Jeep to it's original condition with original spares. I know that driving the Jeep with its original parts and conditions are tough, especially on undiscplined indian road traffic. Hence, I decided to re-work and renovate the Jeep with modern technology. The result is an upto the mark off-roader with a Hydrolic break system and superb performance. The moanster (as i lovingly address it), gets a bit overheated and I have to cool the engine several times during a long-drive. I have replaced the small radiator fan with a heavy duty one and have mixed the coolant to absorb the extra heat. I am now thinking of doing an engine over-haul and fitting a brand-new radiator. May be, I should go for a five speed gear system too to replace the current three speed one.

I should be thanking Balan Automobiles in Ponkunnam, Kerala, Kurian Kurian - Road Track, Kottayam for their support in re-building the monster and Elektra in Perungudi, Chennai for identifying further problems and preparing the monster for heavy duty off-roading.

I have seen many-a-heads turn as the Monster cut through heavy traffic and once the Monster reached Chennai, I have started getting enquiries for sales. Some one has quoted upto 2.25 lacs, but I've put a lot of effort in getting it to the current state and I don't intend to sell it.

Eversince I started re-working on the Jeep I have been literally studying about it and I used to lay my hands on anything about the Willys Jeep that came my way. During this excercise, I have read many articles on how Willys emerged. Let me share my knowledge on the Willys Jeep through this blog.

If the folks at Willys had known that driving in the dirt was a sport, they would have called them Sport Utility Vehicles, but they didn't, so they were dubbed simply Utility Vehicles. It is up to those of us who came latter to make a sport of driving them. The Willys Utility Wagon is clearly the grand daddy of all modern SUV's. It was a 4WD wagon with enough space inside to load up and go most anywhere.

The original pronunciation of "Willys" was with a short "i" sound for the 'y"; so it was pronounced "Will-iss". But it seems to have been transmuted by the same flexibility of language that could produce "Jeep" out of "GP" (Please scroll down for further details on the same). I've heard that the workers in the Willys factories were the first people to mispronounce the name. Like most everyone I have talked with, they pronounced it with a long "e" sound for the "y"."Willys" should be pronounced "Will- eez" and obviously be more than one "Willy". Everyone seems to get more and more confused over time on the pronounciation of "Willys".

John North Willys bought the Overland Automotive Division of Standard Wheel Company in 1908 and in 1912 named it the Willys-Overland Motor Company. Willys-Overland made both automobiles and trucks. The company was reorganized in 1936 after a depression bankruptcy to Willys-Overland Motors, Inc. Before 1940 nothing like the Willys Jeep as we know it even existed.

As the war in Europe spread in the late '30s, the U.S. Military wanted a new light-weight, four-wheel-drive, reconnaissance vehicle. They solicited bids for command/reconnaissance car with an 80" wheelbase and weighing 1300 lbs in June of 1940. Three major companies responded and competed heavily for those Government contracts by building and demonstrating their own prototypes. Bantam, Ford and Willys-Overland eventually came up with similar looking vehicles. The Bantam company won in the early rounds with it's first prototype, but Willys had the wonderful "Go Devil" flat-head four cylinder engine.

Ford had some good ideas too and there was a pooling of ideas that surely violated the spirit, if not the letter, of intellectual property, trade-mark, and other laws, but served the governments needs. The final winner after a few resubmittals was the GPW. "G" for government, "P" for pigmy (a Ford term) and "W" for Willys.

One story has it that the lowly, uninformed GI's thought "GP" was for general purpose, and pronounced it "jeep". Other people say that the word "jeep" was slang for any wonderfully multipurpose thing. The Popeye cartoon had a character, named "Eugene the Jeep" in 1936, who had all kinds of amazing powers. Anyway, the source of the name "Jeep" is now vailed by the passage of time... but on with the story.

The government selected a vehicle based mostly on the design by the Bantam Car Company. Bantam didn't have the mass production facilities needed to supply the government, and the military wanted multiple suppliers. Willys got a contract to build "jeeps" in late 1940. Ford was also awarded a contract a week later. Many parts were interchangeable between the Willys and Ford jeeps. Of the roughly half million jeeps produced for WW2, Willys-Overland made about 360,000 between 1941 and 1945. The jeeps proved to be rugged and dependable in the war, and by the time the soldiers came home, jeeps were well known and loved for their durability and unstoppability.

Willys-Overland was not one of the automotive giants in the prewar era, and had retooled most of their production facilities to jeeps. After the war, production of passenger cars continued, but the company couldn't ignore the potential civilian market for jeeps. They filed for a trademark registration of "Jeep" and began production. The most direct product transition was the CJ (Command / Civilian Jeep) line. This product was little changed from those that had "won the war". The first CJ-2A was produced in 1945. The line has continued from the CJ2 through the CJ3, CJ5, CJ6, CJ7,and CJ8. (They did make a CJ4 but it was only a prototype that never went into production.) The CJ5 and CJ7 are the most common, with the CJ7 being a little longer than the CJ5. The CJ6 and CJ8 were longer wheel base than the CJ7, but they weren't as popular, and consequently there were fewer of them manufactured.

Back in those post-war years, Willys-Overland tried to broaden their market by returning to the car and truck business, in addition to the CJ's. Their products were nothing like the smooth, graceful pre-war products. Instead they capitalized on the tough, utilitarian image of the Jeep with three new vehicles: the Willys Jeep Wagon in 1946, the Willys Jeep Truck in 1947, and the Willys Jeepster in 1948.

These were called the 'Jeep' Utility Vehicles and all retained clear influences of the military Jeep, but the forms were intermediate between the normal rounded forms of the autos of the period and the boxy Jeep. The wagon was similar to the panel trucks or delivery wagons of the day, but with those unmistakable flat fenders (and later 4WD). The truck was similar in size and functionality of a GMC, Ford or Dodge truck of the day, but once again with the Jeep look and available in 4WD.

The Jeepster was a convertible about half-way between a military Jeep and a sports car. This two wheel drive vehicle was only made from 1948 to 1950, but was resurrected by AMC in the '60's as the Jeepster Commando. Some people point out that the Jeepster was technically a phaetom, not a convertible. A phaeton was a type of two-door touring car without a solid top. To the common man, phaeton doesn't mean much.

The wagon and pickup truck were available in both 2WD and 4WD with a 4-cylinder or 6-cylinder engine. Kaiser bought Willys-Overland in 1953 and dropped "Overland" from the name. In the 1956, Willys introduced snub-nosed forward control models. Production of Willys wagons and trucks continued under the name of the Willys Motor Company until 1963, when the name was changed to the Kaiser-Jeep Corporation. Production of the Willys wagons and trucks continued for two more years until 1965. Willys had production facilities in Brazil, Argentina, Israel, and India, and Japan . Some of these continued making vehicles that were essentially the same as the Utility vehicles for several more years. But eventually Kaiser sold these. Thus ended the production of those interesting vehicles we call Willys. In India, as per my knowledge, the then Mohammend & Mahindra company, which is now Mahindra bought the Willys production facility and started manufacturing Indian Jeeps.

Kaiser bought Willys (1953), AMC bought Kaiser (1970), and Chrysler bought AMC (1987). Then Chrysler merged with Daimler in 1998. The Germans who lost the war to the Jeep now own it!!!