Finance Minister unveils fuel pricing formula with hidden variables
View(s):The much-awaited fuel pricing formula has been unveiled by Finance Minister Mangala Samaraweera without much ado at a packed media conference in Colombo on Thursday.
The minister kept people waiting for three months since the introduction of the formula to disclose its variables in public.
Although the formula looks like a simple Algebra equation, the calculation is somewhat complex as it has hidden variables, an analyst said adding that no one knows the cost of vaporization and stock retention costs among several other factors.
Even Mr. Samaraweera told journalists that he also found it difficult to understand the computing of fuel price using this formula.
The final price, according to the formula, is determined by the landed cost (V1), processing cost (V2), administrative cost (V3) and taxation (V4) and accordingly (Maximum Retail Price = V1 + V2 + V3 + V4).
Minister Samaraweera noted that tax on diesel is Rs. 25.48 and the tax on petrol is Rs. 53.68.
Using these two known terms anyone can now start to calculate the oil prices as a hobby before the 10th of every month if they are good with numbers, Minister Samaraweera quipped.
Commenting on the fuel formula, eminent Mathematics Professor Nalin de Silva noted this was not an equation nor a formula but a gimmick (“suthryak nemei meka suththrayak”).
He noted that if the crude oil price goes up, then at least one or two variables should go down in order to get a stable MRP of other fuels.
He said that this formula should be given as a mathematical problem to solve for GCE ordinary level students. The formula is as follows:
- V1 – Landed Cost (Rs./Litre) includes Singapore Platts Price per Barrel, Weighted Average Premium per Barrel, Loss due to the Evaporation and Exchange Rates (US$) / LKR applied.
- V2- Processing Cost (Rs./litre) is equal to local Port Charges, Transport Cost, Dealer’s Margin including losses due to evaporation to dealers and stockholding cost.
- V3- Administrative Cost (Rs./Litre)includes administrative expenses including personnel cost, depreciation and other cost elements, if any.
- V4- Taxation (Rs./Litre) includes Customs Import Duty, Excise Duty, Ports and Airports Development Levy and Nation Building Tax.
According to the pricing formula, Singapore Platts per Barrel and Exchange Rate are two uncontrollable variables. Other components are either controllable variables or fixed components.
(BS)