The problems in petroleum pricing stem from a flawed method, and will cause immense harm to the oil companies and endanger energy security. A DEBATE without data would be a meaningless exercise. But a debate with faulty or fudged data would be positively dangerous. The prolonged national "debate' over the need to increase petroleum product prices is exactly that. One of the most important arguments of the government was that the move was urgently needed to stem the bleeding losses of the publicly owned oil companies. Prime Minister Manmohan Singh, in his televised address to the nation after the hike in the prices of petroleum products, justified it by citing the losses of the public sector oil companies, which he claimed amounted to about Rs.2,45,000 crore. He was, of course, careful in his choice of words; he termed them "under-recoveries'. In commercial parlance one hears of profit and loss, but not of under-recoveries. What, pray, are under-recoveries? The answer to this question would reveal the dirty secret that lies at the heart of the Indian petroleum-pricing regime. Some simple arithmetic can set the record straight, but the Prime Minister has chosen to constitute a "high-powered committee' to examine the issue. Among the terms of reference of the committee is the task of "revisiting' the notion of under-recoveries. It has also been asked to "examine the reported deficit and real deficit faced by the OMCs [oil marketing companies]'. This implies that the actual deficit of the oil companies may be lower than what the government has stated to demand an increase in the price of petroleum products. Does the nation need another committee when all that is needed is simple arithmetic? Officials in the Ministry of Petroleum and Natural Gas also made the unprecedented hike appear reasonable by pointing out that although the oil companies needed a hike of Rs.21.43 a litre in the case of petrol, the government was only increasing the price by Rs.5 a litre. A price of Rs.71 a litre would be reasonable, they said, if crude oil prices were about $130 a barrel. Now, consider the following: India is dependent on imported crude oil, but not entirely. About one-fourth of the nation's requirement comes from fields within the country. Indeed, the Oil and Natural Gas Corporation (ONGC) supplies its crude to Indian refiners at a discounted price of $55 a barrel. Logically, the weighted price of the Indian crude oil basket should be about $111.25 at a time when the international price is $130 a barrel. A barrel of crude is equal to 158.987 litres, which means that the weighted price of $111.25 works out to about 69 cents a litre of crude, or Rs.29.39 a litre. (Incidentally, a large part of the confusion in the media about the losses is caused by the fact that the price of crude is expressed in dollars per barrel, while Indian consumers feel more comfortable handling it in rupees per litre.) The cost of refining crude oil, which is essentially the process of converting it into products such as petrol and diesel, varies a lot depending on a host of factors. But it depends critically on the grade of crude used and a refinery's vintage. One assessment, by Tapan Sen, a Rajya Sabha member of the Communist Party of India (Marxist) and a member of the Standing Committee of Parliament on petroleum and natural gas, mentioned in a letter he wrote to the Prime Minister recently, is that "the cost of crude comprises 93-94 per cent of the cost of the finished product'. He pointed out that if refined products were to cost Rs.71 a litre, crude would have had to cost $256 a barrel. A senior official in a public sector oil company told Frontline that refining margins do vary, but at the most from about 20 paise a litre for Reliance to about one rupee for an old refinery run by his company. Thus, even if one uses the latter figure as the cost of conversion, the price per litre of petroleum products such as diesel and petrol would not be more than Rs.30.39 a litre. Incidentally, both petrol and diesel cost roughly the same at the refinery gate; it is only the rates of duties that cause the differential in prices that consumers pay for the two fuels. It turns out