There are more than ten different elements involved in the calculation of the price of a gallon of gasoline or diesel fuel. When we read the weekly announcement that sets the price of gasoline, we assume that what we pay for a gallon of gasoline is the simple addition of just five numbers: The parity price of importing the fuel (PPI), taxes and profit margins.
But the prices that create such uproar among car owners is the result of averages and estimates that affect the more than seven elements that are used to calculate the main ingredient in fuel prices, the PPI. This price is established by a formula contained in the regulations that govern the Hydrocarbon Law112-00, in force since 2001. The exchange rate and the PPI are two elements that change on a weekly basis. The other elements are fixed costs or averages provided by the Dominican Refinery (REFIDIMSA). According to Arturo Martinez Moya, an economist and former head of the refinery, the formula the deputy Pelegrin Castillo calls “esoteric” is not all bad. “The problem is who supplies the data, because the purchase of fuels is not supervised and nobody knows why at times, with existing contracts, purchases are made on the spot market where it is more expensive. The main weakness is that there is no transparency in the process.” The price itself is derived from the Platts Index that averages the highs and lows of the first three days of the week in the Gulf Coast market where the reference point is West Texas Intermediate. The Hydrocarbon Law specifies that the price to be used for the PPI is the Platts index for the previous week. Added to this is the calculation made by the Central Bank on the exchange rate. The Reserve Bank purchases 30% of the necessary dollars from the prices of the commercial banks and 70% from the exchange agencies at a rate calculated by the CB during the first three days of the week. The law also specifies that the government is to receive a tax on each gallon of fuel sold according to the Consumer Price Index that is published by the Central Bank every two months. In 2000, premium gasoline paid RD$18 pesos per gallon. Today the tax isRD$38.44, just over 30% of the price of a gallon of fuel.
The formula is set out like this: FOB + FT + SM + CB + OC + CMT + GAL.
FOB is the price of the Platts Index for the previous week. FT is the freight charges which are US$1.76 per barrel. SM is marine insurance. CB represents the costs associated with banking transactions (exchange commission, letters of credit etc). Currently it is RD$9.00 per barrel. CMT is the cost of handling the petroleum at the terminal, and is now RD$27.07 per barrel. GAL is the RD$020 commission required by the law for most fuels and RD$4.00 for propane. To the PPI the officials add the profit margins of the distributor (Esso, Texaco, Isla, etc.) the retailer and the transporter. These costs, RD$3.71, RD$8.00, RD$2.25, go directly to the consumer.