Even a year-and-a-half after the dismantling of the administered pricing mechanism in the petroleum sector, the oil pool account continues to exist, albeit in a different form.

The formula worked out by the government to distribute the burden of under-recoveries on the sale of subsidised kerosene and liquefied petroleum gas among both upstream and downstream oil companies has given the oil pool account legitimacy.

In its new incarnation, the oil pool account -- the complex mechanism evolved to cross-subsidise petroleum products during the APM regime -- is a fund maintained through a cess, surcharge, increased excise duty on petroleum products, and higher margins on petrol and diesel sales.

While announcing the dismantling of the APM in the Budget for 2002-03, the then finance minister, Yashwant Sinha, had doubled the cess on crude from Rs 900 to Rs 1,800 a tonne. The 8 per cent excise duty on LPG, kerosene and compressed natural gas for automobiles was replaced by a 16 per cent

Cenvat and a surcharge of Rs 6 a litre on petrol were introduced. In this year's Budget, automobile fuels were taxed further to raise Rs 2,600 crore (Rs 26 billion) for road development, with the imposition of an additional cess of 50 paise per litre on both petrol and diesel.

All this is against the declared policy of the government, which seeks to completely eliminate cross-subsidisation after the dismantling of the APM and provide a flat rate of subsidy on LPG and kerosene from the Consolidated Fund of India.

The government had also declared that both petrol and diesel would be sold on an import-parity basis and their retail prices would move in tandem with international prices.

However, it has now been revealed that petrol and diesel have always been overpriced by oil marketing companies. It is because of this that oil marketing companies in 2002-03 managed to record an increase of Rs 4,379 crore (Rs 43.79 billion) in their profits over the previous year, even while bearing the full burden of under-recoveries on the sale of subsidised cooking fuels.

The overpricing of the two products once again came to the fore on October 15, when despite the international prices of crude moving up from $28.24 a barrel to $31.53 a barrel in the preceding fortnight, oil marketing companies reduced the retail prices of these automobile fuels.

Petroleum Minister Ram Naik conceded that this was possible because of the cushion already available in the pricing of petrol and diesel.

His over-emphasis on the fact that retail prices of the two fuels will not be increased despite the subsidy burden sharing formula, envisaging that a third of the under-recoveries will come from cross-subsidiation, also underlines the fact that their retail prices are already much above their import-parity prices.