BOMBAY, 1 April — This time, April 1, is more than All Fools day in India. Infact April 1, 2002 will down the pages of Indian corporate history as it marks the end of the government control over the petroleum sector. April 1 is the day when the Administered Pricing Mechanism (APM) in the petroleum sector will be dismantled.

And what does this mean for the Indian consumers? The biggest change which will take place is that starting from April 1, consumer prices of petrol and diesel will become market determined. Consequently, all petroleum products will be sold at market prices except kerosene under the public distribution system (PDS) and LPG cylinders used for domestic cooking.

The pricing of indigenous crude oil will become market determined. Also the Oil Coordination Committee will stand abolished. The outstanding dues of the oil companies against the oil pool account will be liquidated by issuance of government bonds to the concerned companies to the tune of Rs.90.00 billion immediately.

The APM allowed the government to control consumer prices for essential products such as kerosene, diesel, LPG etc. to households It was also designed to cushion the poorer population against oil price fluctuations at no cost to government. Subsidies on kerosene, LPG were funded through higher prices on petrol. Thus, APM was designed as a self-balancing mechanism. But due to abrupt increases in the international prices of crude oil, products and inadequate hikes in the corresponding domestic price translated the self-balancing mechanism to be distorted. That is how the oil pool deficit started to balloon. This forced the government to decontrol the sector.

It’s been six years or so since the process of deregulation in the oil sector started. First, the refineries were set out from APM, then some industrial products like naphtha, lubes, followed by ATF and now the mass consumption products — MS (petrol), HSD (diesel), SKO (superior kerosene oil) and LPG (liquefied petroleum gas).

And now with the dismantling of the APM, the oil sector will be free from the government control. The industry and the consumers would be exposed to the vagaries of the international prices of the products.

But the other “mass” products or rather the “political products” like kerosene and LPG will continue to be under the control of the government and will carry a subsidy. But the government has promised that this subsidy on kerosene and domestic LPG will also be phased out in 3 to 5 years.

The biggest impact of this dismantling will be felt by the consumers when they come to auto fuels, when they go to the petrol pumps to fuel their vehicles. Henceforth market forces would determine the economics of auto fuels. Oil companies would decide the retail prices and the maximum retail price (MRP) thus set would be inclusive of all marketing costs (just like any other commodity). Very soon private parties will be permitted to market petrol, diesel and aviation turbine fuel subject to their meeting the specified guidelines notified by the government on March 8. Authorization to grant marketing rights will be issued by the ministry till a regulator for the downstream petroleum sector is set up. It will take some time for the private sector companies like Reliance to have its own petrol pumps but yes, it is happening and will happen very soon.

Infact the Reliance group, which has established a 27 million ton refinery in Jamnagar, Gujarat, has already put in a fresh application to acquire marketing rights for transport fuels, petrol and diesel. Reliance’s marketing plans follow its planning to bid for BPCL/HPCL. It has struck a marketing arrangement with IOC, BPCL and HPCL to sell around 13 million tons of products annually if demand for products is maintained at the current level. But, the company is also at the same time making arrangements to establish its own marketing network

The best part about all this is that consumers, who till now had just one standard fuel, the choice being either diesel or petrol, will now get to choose the quality of fuel which they want. The consumers would now get grades of auto fuels at the same retail outlets priced differently and the government norms for quality would be the benchmark for the products. The companies would offer the products whose quality would be better than the benchmark and charge a premium for it. Those who are very quality conscious and can afford to pay a premium for it would definitely buy the premium quality products.

The immediate benefits of the dismantling will be improvement in the competitiveness of domestic petroleum industry, thereby improving its productivity and efficiency. It will lead to the emergence of a free and globally competitive market with minimal intervention, thereby benefiting both the consumers of petroleum products and the petroleum industry.