The forthcoming elections in five states have cast their shadow on the country's oil economy.

Petrol and diesel prices have been reduced, natural gas price hikes deferred, and upstream oil companies asked to share the burden of underrecoveries on account of subsidised cooking gas and kerosene sales.

As the general public is sensitive to any change in the prices of petroleum products, the ministry of oil and natural gas is taking all steps to ensure that these remain stable in order to negate any adverse fallout at the hustings.

Though Petroleum Minister Ram Naik claims that after the dismantling of the administered pricing mechanism in the oil sector in April 1, 2002, the government has nothing to do with the pricing of petrol and diesel, it is a known fact that his ministry still dictates the retail prices of these two automobile fuels.

Little wonder then that with state elections less than two months away, oil companies have announced a heavy reduction in petrol and diesel prices in the face of the fact that international oil prices are headed northwards.

This move completely ignores the government's stated policy that retail prices of petrol and diesel in the country will move in tandem with international crude prices.

While international crude prices have moved up from $26.20 a barrel on September 16 to around $32 a barrel now, petrol prices have been brought down (in Delhi) from Rs 32.40 a litre to Rs 31.70 a litre, and diesel prices from Rs 20.33 a litre to Rs 19.73 a litre.

Oil companies will have to take a financial hit of around Rs 400 crore (Rs 4 billion) if the upward trend in international crude prices continues for another two months and the retail prices of petrol and diesel are retained at their current levels.

The second casualty of election politics is the delay in the revision of gas prices, which have not been changed for the past four years now.

A group of ministers headed by Planning Commission Deputy Chairman KC Pant had recommended a Rs 350 per thousand cubic metres (mcm) increase in domestic natural gas prices for general consumers from Rs 2,850 per mcm to Rs 3,200 per mcm.

The group had also suggested increasing HBJ gas pipeline transportation charges by Rs 10 per mcm -- from Rs 1150 per mcm to Rs 1160 per mcm. This implies a Rs 360 per mcm jump in gas prices for general consumers.

Though the Cabinet Committee on Economic Affairs was to take up the matter for approval and the issue was listed on its agenda, it was withdrawn by the petroleum ministry at the last moment.

Both Oil and Natural Gas Corporation and Oil India Limited, which produce natural gas, as well as Gas Authority of India Ltd, which transports it, will be hit adversely by this postponement of gas price revision.

ONGC and GAIL have been further hit by the government's decision, again borne out of its political compulsions of not raising domestic liquid petroleum gas and public distribution system kerosene prices, o make them share the burden of underrecoveries on account of the sale of these two cooking fuels.