Sunday, November 27, 2011

Is petrol actually very cheap?

There has been a lot of clamour about high petrol prices, and rightly too. Of the Rs.70-odd per litre that petrol is retailed at, only Rs.35-40 would be the true ‘economic price’ of petrol (including a ‘normal’ level of profit and ‘normal’ taxes) and another Rs.35-odd are taxes.  This is nothing but government loot, no other commodity is taxed as much, except liquor and cigarettes where ethical reasons may justify exorbitant taxes.

Drilling for oil in the deep sea
At these levels of Rs.40 (or even Rs.70) per litre, is petrol really that expensive? Consider the economics. Drilling for oil is a difficult business. Oil is formed in the belly of the earth by a gradual process of degradation of fossils over millions of years of earth’s formation. To get it to ground, you hire a team of highly educated geologists, purchase sophisticated satellite imagery, and identify potential areas where oil could be found. Inevitably, most of such areas happen to be inhospitable, such as barren deserts or at the bottom of the ocean. You need expensive drilling equipment that reaches the core of the earth. Of the many wells that one drills, only a few yield oil in quantities large enough for commercial exploitation. The whole process, from prospecting for oil till the first drop is sold may take anywhere upto 10 years. The company employs highly paid consultants, engineers and project managers who work for years together to make the project a success. The exploration company ends up spending tens of billions of dollars, over several years before its first revenue is earned.

World's largest refining complex is at Jamnagar
Crude oil that comes out of the ground needs to be refined before it can be used. Refining is also a highly complex engineering operation, requires another several billions of dollars of investment, and sophisticated engineering and management skills. Building a refinery takes as much as 3 to 5 years.

Refined petrol, one of the many outputs of the refinery, is now ready to fill your fuel tank, but it is yet to reach the consuming markets. Large and small petrol pumps, located in the nook and corner of the country need more money to build than say, a warehouse storing rice or timber or any other commodity. And when it enters your fuel tank, the fuel is burnt within days and is lost forever!

Throughout this process, huge amounts of time and money are also spent in transporting the commodity. World’s major oil exploration centres are in the barren deserts of Arabia, the deep sea in the Gulf of Mexico and Brazil, or in Siberia in Russia. Major refineries are located thousands of miles away, such as in India, China and the Far East. Consuming centres are in Europe and the US. At each stage, oil is transported through massive tankers which themselves run on oil, or by pipelines, which take several years to build and cost several billion dollars. There are pipelines which run across the entire length of Russia, from Siberia in the East to the developed markets of Europe. Giant ships circumnavigate half the globe from Reliance’s giant Jamnagar refinery to the United States and elsewhere.

I have written all this in some detail to give you an idea of what a drop of petrol goes through, before it enters your fuel tank.

Compare this business to that of making any other household product such as a shampoo, detergent, fruit juice or ketchup. These products can be manufactured in any tin-roof shed just across the lane with a handful of uneducated labourers, and sold in a matter of a few days to recover the costs and make a profit.

Prices of some common household products
Rs. per unit (MRP)
Effective Price (Rs./ Litre)
Dabur Vatika Shampoo
165 per 400 ml
Dove shampoo
58 per 90 ml
Fiama Di Wills conditioner
40 per 50 ml
Lifebuoy handwash
40 per 200 ml
Rin fabric Whitener liquid
18 per 200 ml
Coolmint mouthwash
95 per 250 ml
Baygon spray
138 per 500 ml
Old spice after shave
150 per 100 ml
Colgate toothpaste
91 per 300 gm
Dettol shaving cream
45 per 91 gm
Tropicana Fruit juice
90 per 1000 ml
Red Bull
85 per 250 ml
Maggi Hot & Sweet sauce
107 per 1000 gm
Del Monte tomato ketchup
102 per 1000 gm
Real Fruit Juice
90 per 1000 ml
Navratna Hair Oil
115 per 300 ml
Garnier Deodorant
150 per 300 ml
Thums Up
10 per 200 ml
Petrol (with taxes)
72 per 1000 ml
Petrol (without taxes, approx.)*
40 per 1000 ml

 When we consider all this, does petrol not appear very cheap?

(Note: Images may be copyrights of respective owners)

Friday, November 18, 2011

Kambli Vs Azharuddin - whom should you trust?

Vinod Kambli has claimed that India's 1996 World Cup Semi-final with Sri Lanka might have been fixed, and Azharuddin is at the forefront in rubbishing his claims. One does not know about this specific match, but existence of match fixing and the association of the underworld with cricketers, especially in the 90s is well known. Dawood Ibrahim was a regular at cricket matches in Dubai. Sharad Shetty, D-company’s financial advisor was his key link with international cricket betting syndicates, and advised Dawood on cricket betting. Ashraf Patel, businessman and a close friend of Azharuddin was shot dead by Chhota Rajan’s men in April 2000 for his alleged links with Dawood Ibrahim’s gang. To read a very interesting report on the subject, click  here.

It was also believed at that time that Patel's murder was related to the sensational match fixing allegations made by South Africa’s Hansie Cronje, against which the Delhi Police had registered a case. Azharuddin was questioned by the Mumbai Police after Patel’s murder.

The CBI investigated the match fixing allegations. The full text of the CBI report on match fixing and betting syndicates is available here, but I quote from one of the paragraphs:

“……….Azharuddin was paid a sum of Rs 50 lakhs as an advance with the arrangement that the initial amount would be adjusted against the matches he would 'do' for MK. Azharuddin promised MK that he would provide the exact information as to when India would win or lose. He does not remember the exact number of matches which Azhar 'did' for him during this period………….”

Azharuddin’s cricket career ended when BCCI banned him for life for match fixing.

But public memory is short. In 2009, Azharuddin joined the Congress and won the Lok Sabha election. And today, we have to take sides - Kambli or Azharuddin.

Saturday, November 12, 2011

Tintin is here !

Went for Tintin movie today. As a child, I was a voracious reader, and read a whole lot of books, on a wide range of  topics. Without doubt, Tintin comics was one of my favourites. The Tintin series had everything one would wish for – comedy, adventure and originality. So yesterday, when I heard that a movie has been released on the Tintin series and that too, from Steven Spielberg, in 3-D, it was too much to resist.

Admittedly, the Secret of the Unicorn is not the best of Tintin's stories. There have been others that I have liked more. In fact, this movie is a mix of three of his titles. The director’s choice may have been dictated by the need to show a lot more action, than what a Tintin story normally has. Whatever the reason, the movie is worth a watch for its outstanding animation and the sheer memories that it will bring back to you – Snowy, Captain Haddock and of course, Thomson & Thompson!