Reality check

Updated: Mar 23 2006, 05:30am hrs
Governments move to rein in the public sector oil majors plans to expand retail outlet operations addresses the symptoms and not the disease. The symptoms are manydropping per-pump throughput, loss of significant market share to a single private sector player, etcwhile the disease is deeply rooted. It is, to a large extent, a creation of the very system that is seeking to check it: the differential (read subsidised) pricing of kerosene that makes it lucrative to adulterate diesel with it. For the government to check this would require more than simple periodic pronouncements by the petroleum minister on the need to check adulteration. It would require doing away with the incentive for spiking diesel with kerosene. And that can happen only when we move to free market pricing of petroleum products. In fact, the anti-adulteration cell of the government was wound up when high-level corrupt practices were discovered in the policing agency itself!

Greater competition from private sector players would also help. This would entail reducing the entry ticket cost, which is a staggering Rs 2,000 crore investment commitment at the moment. Today, except for Reliance, that has already notched up a 9% market share in diesel sales with a mere 1,000-odd pumps with the 30,000-strong oil PSUs outlets holding the rest, there is no competition worth the name. What makes matters worse is that pump operators have largely been selected through a rather opaque mechanism laid out by the government. Reservation ensured that only 50% of the pumps were allotted on merit. The result is, on a per pump basis, Reliance outsells the PSU retailers by a factor of four.

All these interventions by the government over time have led to loss of morale in the PSU workforce. In such a scenario, the five-point programme announced by the petroleum minister in Mumbai last week is unlikely to be more effective than any of the past attempts to tackle adulteration. It is high time the government stopped deluding itself that anything short of complete deregulation will address the issue.