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ismantling all about?

One of the buzzwords for the government when it speaks of the reform process - besides divestment and telecom deregulation - has been APM dismantling.

You must have wondered whether this complex term (linked to the petroleum sector) would have any impact on your daily life.

Would the price of petrol, diesel, LPG, kerosene shoot up? Or does this actually mean that these products will actually cost less?

Indian government in 2002 officially ended the Administered Pricing Mechanism (APM). Now crude price is having a high correlation with the international market price. As on date, even the prices of crude bi-products are allowed to vary +/- 10% keeping in line with international crude price, subject to certain government laid down norms/ formulae.

The Government of India has moved away from the administered pricing regime to market-determined, tariff-based pricing. Free imports are permitted for almost all petroleum products except petrol and diesel. Free marketing of imported kerosene, LPG and lubricants by private parties is permitted. It is contemplated that in a phased manner, all administered price products will be taken out of the administered pricing regime and the system will be replaced by a progressive tariff regime in order to provide a level playing field for new investments in a free and competitive market

How petro products priced before APM were dismantled?

Prior to April 1, 2002 - when the new regime set in - domestic prices of some of the petroleum products were partially ——insulated' (protected) from volatile international crude oil prices (from which these products are derived) and certain products like kerosene and LPG were subsidized.

The oil companies were told how much to sell and at what price.

To get a clearer picture let us take a quick look at the selling mechanism of the four main petroleum products used in India - petrol, diesel, kerosene and LPG.

Petrol (motor spirit)

Earlier, due to government control, price of petrol was always higher than that of other fuels (like diesel). Petrol prices have been kept at Rs 33 per litre while for diesel it stands at Rs 17 per litre.

Further, over the years, both petrol and diesel have been amongst the highest taxed of all commodities through state-related sales tax and customs and excise duties.

All these factors have led to an overall higher consumption and usage for diesel compared to petrol. Petrol accounts for a sale of 9.3 m tonnes though margins on sale of petrol are higher than that of diesel.

A simple example

1)A two-wheeler consumes, on an average, 86 liters of petrol per year, for which the owner

spends Rs. 320 per month (Rs. 510 in Delhi). The fuel expenditure of car owners is much largerat Rs. 2210 per month (Rs. 4140 in Delhi). Motorized vehicle owners are largely well-offpersons belonging to the upper two/three deciles of the population. There is no reason tosubsidize this class of consumers.

2) Full price pass-through at US $ 80/bbl will increase the retail price of petrol by around

Rs.7/litre. The additional expenditure of a two-wheeler owner would be only Rs. 50 per month(all-India average). Even for two-wheeler owners in Metro Cities who drive more (around 10000KM per y