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THE REPORTED RELUCTANCE of the Petroleum Minister, Mr Ram Naik, to allow differential pricing of petroleum products in coastal and inland locations is not surprising in the least. It is only yet another manifestation of the Petroleum Ministry's obvious lack of intent to allow free pricing of petro products in its true sense. Theoretically, from April 1, 2002 the oil sector was supposed to be in a deregulated environment with companies free to align regularly the product prices, especially the transportation fuels, with international rates. But what prevails is well known. Oil companies cannot adjust prices without the tacit approval of the Petroleum Ministry and, on occasions the Minister has appropriated their job and announced price adjustments himself. If this is the case with transportation fuels, it is worse vis-à-vis LPG and kerosene. It is a paradoxical situation of the Government not wanting the retail prices of the two so-called poor man's fuels raised to reflect their real costs, and yet, unwilling to reimburse the difference between cost and selling price to the oil companies, leaving them to fend for themselves. Admittedly, there is a long way to go before the oil sector can be free from government control.

The issue of differential pricing has come into focus now with Essar Oil employing competitive tactics in the bulk market for diesel for the first time. The company imported a parcel of diesel and sold it to bulk customers at a price that is lower than that of the public sector oil companies. This was possible because the public sector companies have a normalised rate for diesel (as also for petrol) across the country with the final retail price varying only to the extent of the sales tax element at the point of sale. Freight costs are normalised regardless of location which means that the price of diesel sold by the public sector companies at certain locations carries an element of freight that was not incurred. Essar Oil exploited this pricing flaw. Though the volumes are not threatening as yet, the public sector companies have recognised the flaw and want to restore the competitive balance. Hence, their demand for differential pricing. But why is Mr Ram Naik reluctant to concede the demand? Simply because differential pricing would push up sharply fuel prices in many inland locations, that is, in the heartland of India including the critical States of Madhya Pradesh, Rajasthan, Chattisgarh and Delhi, all going to the polls shortly. The last thing the Government would want is a spike in fuel prices with elections on hand.

How is it that price inflation in other commodities does not reflect directly on the Government but that of fuel does? People associate the Government directly with fuel pricing simply because it has failed to let go of the strings it has held for so long besides, of course, the fact that the vendors of petroleum products are all government-owned companies. The latter will correct itself as and when these companies are privatised. For the larger problem, the Government has to wean itself away from the oil sector and leave pricing to market forces. Until that happens, the sector cannot be termed truly free.

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