Policy-makers do not seem to be in a mood to rush into price reforms in the first retail product that will be freed since the phased deregulation in the petroleum sector began in 1997. Petro-products that are now governed by market mechanics, are mostly in the bulk trade business and reach actual users through a network of traders.

Oil companies do not retail naphtha, bitumen, wax or furnace oil, the prices of which have all been freed in April 1998. They do retail ATF, diesel, petrol, LPG and kerosene, mostly in keeping with the government's distribution guidelines. The alarm goes off for a free market in ATF prices even before think-tanks in government have evolved incentives for marketing essential fuels in remote, far-flung and ``unviable'' locations. Petrol, diesel and the bulk of kerosene and liquefied petroleum gas (LPG) will not be in the free market till 2002.

The administered pricing mechanism (APM) dismantling schedule for crude oil and petroleum products earmarks the 2000-2001 fiscal for lifting controls on prices and imports of ATF. Jet fuel imports dwindled to a halt in 1998-99, when the domestic output caught up with the home demand for roughly two million tonne.

Prices of ATF, however are still controlled and were till February this year, used to cross-subsidise cooking fuels like LPG and kerosene. The steady increase in jet fuel prices in the world market over the last year have caught up with the inflated domestic price of ATF since. The February average for spot prices (free on board) in Singapore shot up to $245.97 a tonne from $217.73 a tonne in November. Aviation turbine fuel is actually a drain on the oil pool account now. Every litre of jet fuel comes with an unintended subsidy of Rs 1.50 from the oil pool. Freeing jet oil prices, therefore, will not upset the cross-subsidisation apple cart.

It will, though, pinch mega market player Indian Oil Corporation (IOC) really hard. The Indian Oil annual report says that the company was ``a leader in the aviation fuelling business'' with a market share of 68.7 per cent.

The company caters for ``the entire aviation fuel needs of the Indian Army and Navy and nearly 90 per cent of the Indian Air Force.'' The oil companies carry inventories for the defence forces, at Gwalior for instance. In market-driven conditions patriotism could scarcely be enough incentive for the national oil companies to hold stocks for the Army, Navy and Air Force.

According to the company's annual report, Indian Oil has 92 jet fuel stations all over the country, but the profitable re-fuelling locations are at barely 25 places. The other two oil companies that also market jet fuel, namely Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (HPCL) have by and large confined their operations to the profitable aircraft hubs. The social responsibilities of the public sector have compelled Indian Oil to set up aviation fuel stations at places like Agra, Khajuraho, Kulu and Imphal.

At these locations Indian Oil sometimes caters for a single flight a day or even a flight thrice a week! In a free price regime, would the company still want to retain establishments at centres at which it hardly makes any money?As long as ATF prices are administered, the retail price of Rs 15,922.79 a kilo litre in Mumbai and Rs 15,530.04 a kilo litre in Delhi could help oil companies make up for the losses per kilo litre at unprofitable fuelling stations like Srinagar or Indore. Once prices are freed, competing companies may be tempted to undercut prices to be able to increase their market share at the aircraft hubs. The losses of the less viable locations could become unsustainable.

Similar hitches in connecting far-flung and remote areas have been mitigated through freight subsidies. A subsidy solution to compelling oil companies to retail jet fuel stations at unprofitable centres will involve another long debate. Should the subsidy come from the oil pool account (now bending backwards with the Rs 12,000 crore subsidy on kerosene and LPG) or should it come out of the Union budget? Till the little bumps are ironed out, jet fuel price controls stay.