NEW DELHI, Aug 23: The Union cabinet which met on Saturday did not take up the much-talked about hike in prices of petroleum products. The meeting thus proved to be a damper for the petroleum industry.

Union petroleum minister Janeshwar Mishra's absence from the capital had from the beginning, ruled out the possibility of the oil price hike figuring on the rather long agenda before the Cabinet today. Yet speculations were rife, leading sometimes, to frenzied stocking at filling stations around the metropolises. An official spokesman, however, said that the Cabinet was meeting again on Monday. He, however, declined to say whether the issue would be taken up at the next meeting.

The nail-biting that began ever since the United Front Steering Committee gave its tacit consent to an increase in prices of petroleum products on Thursday, was destined to continue through the weekend, at any rate. Foretelling the compromise formula that the petroleum minister is expected to put up before the Cabinet, combining all the views expressed at seven consecutive meeting of the Front, will be harder than crystal gazing.

The mood around the capital suggests, though, that the arithmetics of petroleum product pricing had been influenced by a quaint mix of a spirit of reforms and shrewd business sense. The Union petroleum ministry is believed to have done a nimble balancing act of aligning oil prices at home with rates prevalent worldwide and flogging market leaders to cough up the shortfall in the oil pool account.

At the current pricing of petroleum products prevalent since July 1996, the oil industry loses Rs 9000 crore a year, by cross subsidising kerosene, diesel and liquefied petroleum gas (LPG). The subsidy of Rs 2 per litre of diesel, Rs 76 per 14 kg cyclinder of LPG and Rs 5.5 a litre of kerosene are paid for by motor spirit and aviation turbine fuel (ATF).

Motor spirit or gasoline carries most of the burden of that subsidy, resulting in a 100 per cent cross subsidisation of the price of petrol. The burden of cross subsidisation inflates the price of aircraft fuel (ATF) by 60 per cent.

The spirit of liberalisation, that has already spurred a serious exercise in pushing through the recommendations of the R-Group on petroleum sector reforms, dictates that oil prices be brought more in tune with market forces. Global integration, feel industry pundits, was a meaningless drill, unless pricing of petroleum products were brought in line with international standards.

The reform mania should have spared motor spirit and ATF from a price hike altogether, since both the products are hugely overpriced at home. The rule books of marketing, however, demand that premia be attached to selling products.

While ATF has a select clientele, taking up only three per cent of the total sales of petroleum products, motor spirit has a larger market base of six per cent. The select clientele for gasoline also has an ability to pay more and will possibly have to.

The demand pattern at home shows that diesel was the fastest selling item, hogging 45 per cent of the total market for petroleum products. Diesel consumers, therefore, are likely to emerge as the losers of the day. The winner of the day will be the airlines and air taxi services, which will continue to pay the same price for aviation turbine fuel (ATF).

Kitchen stoves will singe purse strings as both liquefied petroleum gas (LPG) and superior kerosene oil (SKO) get dearer, as part of the subsidy is rolled back.

The crystal ball shows that motorists will feel the pinch too, but not as much as the transport industry and industrial users of diesel, thanks to the raging demand and huge market base of HSD.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.