The repeated increase in the price of petrol and aviation fuel, purportedly due to the rising cost of oil in the international market, has raised some pertinent questions regarding the government’s policy of subsidising kerosene.

It is a widely accepted fact that the poor, who are the target population of the kerosene subsidy, do not get the fuel at a lower price and sometimes do not get any fuel at all because it is siphoned off into the flourishing black market.

Industries and the service sector, which includes fishing boats, launches, delivery tempos and even autorickshaws, use kerosene, which is largely bought in the black market, where kerosene costs anything between Rs 40 and Rs 50 per litre against its PDS price of Rs 15.

Union minister of state for petroleum and natural gas R.P.N. Singh has gone on record in Parliament stating, “The possibility of diversion of PDS by some unscrupulous elements to derive monetary benefit cannot be ruled out due to huge price difference between PDS kerosene and petrol/diesel as well as non-PDS kerosene.”

Asked about this state of affairs, Mr S.S. Bajaj, deputy controller, ration-ing department, Mumbai, said, “There is no denying that kerosene intended for the poor makes its way into the black market in Mumbai. In fact, we have been regularly busting such operations, say, around three to four cases of black marketing of kerosene every month,” he said.

Obviously, detection and nabbing the culprits is not up to the mark since the illegal selling continues unabated.

The situation has turned critical because of another factor — the reduction in the quota of kerosene to states.

“The government has cut down on the quota of kerosene required in Mumbai and Thane by nearly 30 per cent. Earlier, Mumbai used to receive 27,000 tonne-litres of kerosene, but now, it receives 19,000 tonne-litres. As a result, there is a major shortage of kerosene. Naturally, it isn’t hard for ration shops to take advantage of this situation by selling the kerosene to black marketers,” Mr Bajaj admits.

Consumers can attest to that. “Our ration shop never has any kerosene. Although we are supposed to get the kerosene at Rs 28 per litre, we are forced to buy from the black market at Rs 40 to Rs 50 depending on the day of the month,” says Sarita, who works as a housemaid and should be the prime beneficiary of the subsidy.

The situation is no different elsewhere. In Andhra Pradesh, there are 1.42 crore single-cylinder and 4.87 lakh double-cylinder connections, apart from 38 lakh Deepam LPG gas connections (as on November 1, 2011) provided by the state government to the poor.

However, the state government still allows all white card holders to avail their monthly kerosene quota, irrespective of their economic status and even if they have gas connections.

Experts say that kerosene is bought in bulk amounts and reaches the black market, leaving next to nothing for the poor man. In effect, the government itself is allowing the black marketing of kerosene, albeit indirectly.

When the AP government ordered the vigilance and enforcement department to investigate, all those entitled to subsidised kero-sene, said that they receive their monthly quota. Government sources themselves say that these beneficiaries are paid money (to the tune of their monthly quota), and at some places, ration dealers even buy back the same stock from the beneficiary and sell it on the black market.

At some unscrupulous petrol pumps, chemicals are mixed with kerosene to ensure that it loses the distinctive blue colour of the fuel supplied by the PDS. Reports from some districts suggest that black marketers mix around 20 per cent of kerosene with petrol so that its colour impact will not be measured.

The fuel subsidy accounted for about 3.4 per cent of the Central government's spending in 2010-11. And for the same year, PDS kerosene allocation by the central government was 1.12 crore kilo litres.

The government can do one of two things: it can resort to direct transfer of the subsidy or it can continue with the present system and take steps to wipe out the adulteration racket. Currently it is doing nothing.

Why can’t the scam be stopped?

In 2005, a report by the National Council of Applied Economic Research (NCAER) estimated that 38 per cent of the kerosene meant for the public distribution system (PDS) was diverted for non-PDS use, to adulterate petrol and diesel.

While Tamil Nadu, Uttaranchal, Assam, and Chhattisgarh lose 40-50 per cent of their PDS kerosene to black marketers, it is in the range of 20-40 per cent in Andhra Pradesh, Guj-arat, Haryana, Karnataka, Madhya Pradesh, Mahar-ashtra, Meghalaya, Rajast-han and Uttar Pradesh, the study revealed.

The kerosene scam exists because of the huge price difference. While a litre of PDS kerosene costs Rs 14.83 per litre, petrol is priced at `66.42 (in Delhi), which encourages adulteration.

So entrenched is the mafia that controls the adulteration racket that an additional collector of Malegaon in Maharashtra, Yashwant Sonawane, was burnt alive in broad daylight in January for trying to expose it. In 2005, an Indian Oil officer, Shanm-ugham Manjunth, met a gory end when he tried to do the same in UP. There was much anger and outrage at these shocking incidents, but it didn't last long.

The petroleum ministry announced a number of steps to check the misuse of kerosene and said it would re-introduce the marker system.

Nearly a year later, the government has failed to do so. Other steps, like installing GPS in all trucks that transport oil, to track their movements, has also not been fully implemented. It is when trucks are transporting the fuel that the siphoning off takes place.

The government has set up a task force to study the direct transfer of subsidy in case of kerosene, LPG and fertiliser, headed by Unique Identification Au-thority of India (UIDAI) chairman, Mr Nandan Nilekani. The panel has suggested computerisation of PDS outlets and mooted the creation of an IT network by April 2012 to reform PDS functioning.

But the effectiveness of any strategy largely lies with the states since distribution lies in the hands of the state administration. Until and unless the state governments buck up, the menace of misuse of kerosene is unlikely to be curbed and public money will continue to be wasted.

ATF: How it is different?

Aviation turbine fuel (ATF) can roughly be described as kerosene without moisture. It is far more refined than the kerosene sold in the market, containing additives that ensure it doesn't freeze and solidify at the high altitudes at which aircraft fly.

“The base is kerosene but ATF is highly proces-sed. It is treated differently to make it in liquid form at -35 or -50º Centigrade. It therefore becomes a different product,” said a senior official from a public sector oil company.

While non-subsidised kerosene costs Rs 40.49 per litre, ATF costs around Rs 62 per litre. “The price of ATF is linked to international prices as it is sold to both domestic and international carriers. We don’t have separate price phenomenon for domestic and international carriers,” says an official from another oil company.

While domestic airlines have to shell out Rs 62,310 (in Delhi) for 1,000 litres of ATF, the IOC website cla-ims the international airlines can buy the amount of fuel for $941.49, which translates into Rs 49,070.

The other reason for high ATF prices is that unlike kerosene, it is a commercial product and is highly taxed.

In Chennai the ATF is taxed at 29 per cent, whereas in Bengaluru the tax is 28 per cent, and in Hyderabad it is 16 per cent.

Aam aadmi’s ‘blues’

The Centre spends thousands of crores to subsidise kerosene. But is the poor man’s fuel reaching him?

* Kerosene shortage:

The government has cut down on the quota of kerosene to the states resulting in its shortage.
Hence, ration shops sell the ‘scarce’ kerosene to black marketers and gain profit.

* Adding fire to fuel in AP:

Andhra Pradesh government allows all the white card holders to avail their monthly kerosene quota, irrespective of their economic status and even if they have gas connections.

* Fast forward:

The government can either resort to direct transfer of the subsidy or it can continue with the present system and wipe out the adulteration racket.