SLICK OIL

In this growth story, lies the bigger story of the use of diesel in India. The fuel subsidised for farmers and the common man is lighting and driving urban India, running its generators and SUVs.

It8217;s fitting then that perhaps the largest consumers of diesel is Gurgaon with its high rises and malls, running generators for power back up as electricity-starved Haryana craves power. A large chunk of this demand for diesel comes from the fuel-guzzling SUVs and MUVs that double up as taxis for call centres that operate out of the city8217;s glittering offices.

The story is similar in other parts of the national capital. Ajay Bansal, General Secretary of the All India Federation of Petroleum Dealers, says there is an increasing number of large sedans and SUVs queuing alongside trucks at his Mayur Vihar fuel outlet.

8220;While trucks continue to account for 40 percent of the sales, the small taxis and SUVs consume around 12 per cent. Industrial sale, which is essentially gensets, has doubled to 20 per cent. Tractors and pumps make up the rest,8221; he says. The message is clear: Diesel is no longer the fuel of the aam aadmi, with those who can pay for higher-priced petrol becoming its prime consumers. And when the UPA Government decided early this month to limit the diesel price hike to a token Rs 3 per litre the required increment was Rs 31.58, it became a party to indulging the lifestyles of the rich.

While petrol in Delhi costs approximately Rs 48 per litre, diesel comes for about Rs 33 a litre. On June 4, Prime Minister Manmohan Singh approved a rise of Rs 3 a litre on diesel, Rs 5 on petrol and Rs 50 a cylinder of LPG. The increase, in percentage terms, was the smallest as far as diesel went. Compare: Rs 3 hike in a required Rs 31.58 for diesel, Rs 5 in Rs 21.43 for petrol and Rs 50 for Rs 352.99 on LPG.

This, the PM rationalised in his national address, was an outcome of the UPA8217;s objective to pursue policies that would make India8217;s growth process 8220;more socially inclusive, more meaningful to all sections of society and more beneficial to farmers, artisans, and industrial workers8221;.

Singh8217;s statement stems from the perceived notion that cars and two-wheelers are luxuries while diesel is the fuel of the farmer and the transporter and that an increase in diesel prices would be inflationary.

But there is no study to back this breakup of consumption pattern. Dr B Mohanty, who heads the Government8217;s Petroleum Planning and Analysis Cell, is working on the subject as the last survey done in 1998 is redundant. 8220;The consumption pattern has shifted drastically in the last five years,8221; he says.

Mohanty is thinking of including petrol in the proposed profiling at retail outlets as it would help in modeling the pricing options. 8220;Diesel is fast emerging as a luxury fuel when compared to petrol. At least, for petrol, there are a large number of two-wheeler users who fall in the low or middle income group.8221;

The Industry Performance Review for April 2008 prepared by the oil industry gives due credit to cars and gensets for the 13.2 per cent growth in diesel sales. 8220;High speed diesel recorded a high growth during the month mainly due to increasing commercial vehicles sales and use in power generation due to power shortage,8221; it says.

CMIE data shows that commercial vehicle sales jumped 32.1 per cent in 2006-7 while passenger cars and multi-utility vehicles were up 19.7 per cent. Sales declined at 5.5 per cent for commercial segment a year later but cars/MUVs maintained their growth at 11.8 percent. Interestingly, neither the Society of Indian Automobile Manufacturers nor CMIE provide a break-up of diesel and petrol variants sales.

As for agriculture, the Petroleum Conservation Research Association says the sectoral consumption is a mere 4 per cent of the total. Hoping that PCRA is right, and grouping it with the finding that fuel accounts for two per cent of the cost of agricultural produce, a continued political concern for this miniscule impact on farmers would only be beneficial for the high-end guzzlers.

Another fear has been that raising diesel prices would be inflationary. But this, says a government economist, is difficult to pinpoint in the absence of any study on the indirect impact of fuel price rise. According to him, on an average, the indirect impact would be one-third of the actual price increase.

But transporters and vendors use it as an excuse to jack up fares or retail prices every time a price increase is announced, says Sanjay Kumar, DGM Logistics with the Phoenix Group. 8220;The present increase would cost a Tata truck owner Rs 750 more in fuel cost. But freight rates have not gone up as the transport industry is fairly competitive.8221;

The leash on diesel prices, while allowing a free flight to its close counterparts8212;light diesel oil and fuel oil8212;has resulted in industrial demand shifting to the cheaper and more calorific diesel. Its sales climbed 11.1 per cent in 2007-8 while LDO fell 8.3 per cent and FO by 0.8 per cent see graphic.

And this is not a small segment. A study by Powerline Research showed that captive power is estimated at 20,000 MW or 22 per cent of the country8217;s power output. Cheap diesel makes captive power cheaper than that from state electricity boards.

A week before prices were raised, Indian Oil Corp Chairman Sarthak Behuria cited diversion to industrial use as the rationale for restricting diesel sales. 8220;We are ready to meet a demand growth of 10-15 per cent. The demand is rising also because diesel is being diverted as it is cheaper than industrial fuels,8221; he said on May 28.

Despite the price hike, diesel continues to be cheaper see graphic. However, in order to curb the purchase of subsidised diesel by SUVs and genset guzzlers, IOC and other two state-run oil marketing companies have started pushing branded diesel which is higher priced than regular diesel in metros.

That8217;s not all. Diesel supply to outlets is being restricted to allow an extra 10 per cent over last year8217;s sold volumes. With pricing failing to ensure judicious use, it8217;s back to rationings.