Better marker system for kerosene misses deadline

With the government looking to introduce direct cash subsidy transfer for kerosene, the decision to bring back a better and improved marker system by June has missed its deadline.

A petroleum ministry official said the move towards a direct subsidy transfer will eventually curb pilferage of kerosene and reduce the need for a marker system. When asked, an OMC official said that the companies have not been able to identify a suitable marker so far.

In January this year, after killing of an additional collector in Maharashtra by the oil mafia, Petroleum Minister S Jaipal Reddy had directed the oil marketing companies (OMCs) to reintroduce an improved marker system for PDS kerosene by June.

In 2007-08, the OMCs — Indian Oil, Bharat Petroleum and Hindustan Petroleum — had introduced a marker system to detect adulteration in diesel. It was, however, discontinued the use of dye, which was sourced from US company Authentix after concerns of toxicity.

Markers are a colouring chemical mixed with kerosene that helps check whether it has been used to adulterate diesel. While a litre of kerosene costs Rs 14.83, diesel is priced at Rs 41.29 a litre.

The difference makes it lucrative for diverting kerosene from the public distribution system to mix the cheaper fuel with diesel. As kerosene has the same density range and similar characteristics as diesel, adulteration of diesel with kerosene cannot be easily detected.

Apart from adulteration, kerosene is being sold at a price, which bears no correlation with price of alternate fuels in the market, leaving ample scope of diversion to the black market.

The government does not have any estimate of the loss caused to the exchequer in terms of siphoning of kerosene subsidy though a back of the book calculation reveals that at 38 per cent diversion, around Rs 6,600 crore kerosene subsidy did not go to the targetted population in 2009-10 while the figure was much higher at Rs 10,725 crore at 2008-09 level.

Besides, a consequence of this diversion is that the more than Rs 20,000 crore of investment in producing Euro III and Euro IV diesel is negated to a large extent if diesel is adulterated by kerosene.

The Task Force on direct transfer of subsidies headed by UIDAI Chairman Nandan Nilekani in its interim report submitted to finance ministry earlier this week has recommended a direct transfer of subsidy on kerosene, LPG and fertiliser.

“The price of subsidised goods should preferably be the market price, or an administered price that is close to the market price. This can reduce market distortions introduced by dual pricing, improve the productivity of manufacturing and distribution, and reduce the incentives to pilfer. The subsidy can then be transferred directly to the beneficiary’s bank account, thus ensuring that only the individual and their family receive the subsidy”, the interim report has said.

A pilot on direct transfer of kerosene subsidy will be launched in September this year from Delhi wherein an advance transfer of cash equivalent to a month’s subsidy will be made. This will be followed by the linking of subsidy to actual lifting at market price. The pilot will be replicated in other locations based on the penetration of ‘Aadhaar’, the new identity card.