S Dinakar: Government plays a big role in oil adulteration

While the role of the huge price difference between subsidised kerosene and diesel in adulteration is obvious, the other serious problem is the lax specifications set for various products.

The stench on a busy Chennai thoroughfare, emerging from tailpipes of new automobile models and old buses, is so overpowering that for a moment it takes you back in time. The nauseous fumes are anachronistic in a country, which introduced Euro-III norms last year, thus mandating low sulphur levels and lower aromatics content in transportation fuels sold in leading metros, with an eye on reducing emissions and improving safety.

But as a study on adulteration of such clean petroleum fuels by a top Indian think tank shows, state oil companies and regulators pay lip service to the improved pollution control laws, and sell noxious cocktails of petrol and diesel, spiked with kerosene and aromatics, through their retail outlets. The decision to use imported dyes, not visible to the naked eye, to mark kerosene so as to catch adulteration, is an acknowledgement of the serious nature of the problem.

The National Council for Applied Economic Research (NCAER), a Delhi-based think tank, estimates that 38 per cent of the 214,000 barrels per day kerosene sold to the poor through the public distribution systems (PDS) is diverted to the black market; and nearly half of that goes into the adulteration of diesel. In some cases, kerosene, a popular adulterant that contains up to 2,000 parts per million (ppm) sulphur compared to 350ppm sulphur in Euro-III diesel, is sold as diesel, with adulterators profiteering by as much as 400 per cent; besides high sulphur fuels are harmful to human health.

One study by a former Conoco executive who now runs a Mysore-based NGO estimates the amount of unaccounted money circulating through the oil sector and fattening the pockets of several people to facilitate adulteration ""from top officials and politicians to lowly sales officers in state oil companies and pump owners "" is around $4 billion. In the context of the country's $50 bn oil industry, it appears a reasonable estimate.

To make things worse, pollution levels have spiralled and safety norms have been compromised. Many adults and children in Chennai, Hyderabad and Bangalore "" the so-called India's software powerhouses "" are suffering from breathing problems because of noxious fumes from adulterated fuels. The declining health standards in India affect productivity levels and increase health costs of service companies in the IT and BPO sectors, which rely more on people than machines to compete globally.

Also vehicular safety is compromised because of adulterated fuels. There have been cases of vehicles catching fire under mysterious circumstances, which Chennai-based NGO Concert's trustee R Desikan's blames on impure diesel. It doesn't help that the flashpoint of Indian diesel is around 35 degree centigrade, extremely low for hot countries such as India, says R Balasubramanian, technical director, Concert, which specialises in quality standards of petroleum products. Most countries in the world, many in cooler climates, have flashpoint levels of 55-60 degree centigrade keeping the safety of citizens in mind, because low-flashpoint diesel is easily combustible. Low flashpoints also make it easier to adulterate.

Indian Oil Chairman Sarthak Behuria agreed, on the sidelines of a summit on adulteration in Chennai, that adulteration was rampant but discounted NCAER's numbers on diversion of kerosene.

Kerosene sold through the PDS system costs around Rs 9 per litre, and diesel sold at pumps costs around Rs 32 per litre (in Delhi), thereby making the adulteration of petroleum products one of India's most profitable businesses. Margins are lower in some cases, when solvents such as benzene, toluene or other industrial chemicals make up a large portion of a litre of gasoline sold, but still substantial at 100-200 per cent. "We will not increase kerosene prices or reduce subsidies to reduce adulteration," Murli Deora, petroleum minister, said at a seminar on adulteration in Chennai.

But large subsidies on kerosene and lower taxes on some hydrocarbons coupled with low penalties for adulterators have transformed the trade from a cottage industry into a technology-driven business, where criminals use private labs and sophisticated equipment to make potent transport fuel cocktails. The criminals have also started branding their fuels. "There was a cheaper variety of gasoline sold in Mysore called Mysore MS where aromatics was mixed with gasoline," said MS Srinivasan, secretary, ministry of petroleum.

According to a study done by Concert for California Air Resources Board nearly 20 per cent of the retail outlets in Chennai city are suspected to sell adulterated diesel and gasoline. Concert's Desikan says that adulteration levels have dropped in Chennai in the past decade, but it has become difficult for independent bodies like Concert"" which has a modern lab in Chennai funded by the US Agency for International Development"" to prove adulteration. "Indian product specifications for diesel and gasoline are too broad. They must be tightened," says Desikan, who first published results on adulteration in Chennai in 1997 after testing impure fuels at a laboratory in IIT Madras, and found oil companies trashing his findings.

The government is to blame for the adulteration of petroleum products in India. Penalties are low, and specifications for petroleum products, virtually dictated by state oil companies with an eye on maximising profits, compromise safety for motorists, passers by and to those working in petrol stations.

Fuel specifications such as kerosene blends, additives, flashpoint, and viscosity are defined by the Bureau of Indian Standards. But India's quality regulator has resisted calls for tighter standards under pressure from state oil companies. For instance the production of diesel at higher flashpoints "" making it less flammable "" reduces the output of diesel and increases the output of naphtha, which is used in fertiliser and power plants. But India has a surplus of naphtha and is a large consumer of diesel. So state oil companies in India, unlike their western counterparts, prefer producing low flashpoint, easily combustible diesel to maximise revenues ignoring safety.

Moreover, lax specifications in diesel and gasoline encourage adulterators. Low flashpoint levels in diesel make it easier for adulterators to mix kerosene, which also has a 35 degree centigrade flashpoint, to diesel. Viscosity levels in diesel are mandated at 2-4.5, a range so wide that you can mix about 40 per cent of cheap kerosene and the diesel sample would still maintain the state-prescribed viscosity levels. In the case of petrol, cheaper solvents are added to increase octane levels to 91, while other additives such as toluene, benzene or n-hexane in large proportions are carcinogenic.