There is a buzz in the markets that the oil sector may be worth a second look.  The euphoria, say punters backing oil stocks, is that concrete steps are finally being taken to reduce the kerosene subsidy by 40% in 18 months.  This, together with a 40% cut in subsidy on LPG (or cooking gas), elimination of subsidy on auto fuels and a change in the subsidy sharing mechanism, could steeply reduce the subsidies plaguing oil refining and manufacturing/processing (R&M) companies which runs into several thousand crores of rupees (see table).

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They point to the in-principle approval given, in June 2006, by the Indian Cabinet to subsidized kerosene being sold only to the poor (i.e. below the poverty line or BPL families).  This is likely to be done by issuing smart cards to the eligible BPL families. A pilot project is slated to be implemented from January to June 2007 in two of the districts (one in the state of Bihar and the other in the state of Uttaranchal).  If this scheme can be implemented in these two states, acknowledged to be problematic states by many, it should be easy to implement across the country.

From July 2007 the project is to be implemented throughout the rest of India. It is expected that by limiting the sale of subsidized kerosene only to the poor, together with elimination/reduction of use of kerosene for adulteration of diesel, the subsidy on kerosene could be brought down. This is because at least 40% of kerosene consumed currently is either being used for adulteration or is being sold to above the poverty line (APL) families. 

 

Slippery subsidy payouts		Rs./crores
Year	Budgetary Allocation for oil subsidies	Actual payments released during the year
2002-03	4,495.80	4,495.80
2003-04	6,292.44	6,292.44
2004-05	3,500.00	2,930.31

Source: Ministry of Petroleum (figures after 2004-05 not available).

 

According to informed sources, efforts are also being made to eliminate/reduce use of kerosene for the adulteration of diesel, which is quite rampant. This is sought to be achieved by putting a marker in kerosene from October 2006 whereby any adulteration of diesel by kerosene can be easily identified on testing. Already surprise check-ups are being conducted at petrol stations to ensure that there is no adulteration.

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But not everyone is gung-ho about such talk.  Sceptics are quick to point out that elections are just round the corner.  And much of the lubricant for the election machinery comes from adulterated diesel, and the leakage of kerosene from the public distribution system (PDS). <> 

Others snigger when someone tells them that the marker in kerosene will reduce adulteration of diesel.  “Even policemen on duty literally gag on the choking fumes of kerosene coming out of the exhausts of trucks; but they do not take action.  Do you think they will bother to examine the colour of the fuel?” asks one such sceptic.  In fact, they underscore how even after Áaj Tak showed live footage of how trucks adulterated diesel just outside the refineries in Mumbai, the only culprits caught by the police were a couple of drivers.   Nothing changed, except the location where this adulteration was taking place.  <> 

The government’s intentions are suspect also because, just last year, it actually disbanded the committee which used to oversee the diversion of oil – a fact brought out by Outlook almost eight months ago.  The stakes in the diversion of kerosene are very high, and even large corporate entities are believed to be involved in this business. And the publication estimated these leakages to be well over Rs.10,000 crore annually. <> 

Lastly, few are convinced about the need to have one more survey, issue of another type of card (smart or not does not matter) when a single identity card linked to a well designed database – meshed with the Census – would have suffi ced.  That way, one could identify families that are poor, and families that are illegal immigrants as well. <> 

Obviously, with elections on the one hand, and the encrusted penchant for sleaze on the other, it is likely that the cabinet decision of June 2006 will remain another pious exercise.  And, as John Milton, observed, almost 400 years ago, “Hell is paved with good intentions, and roofed with lost opportunities”.