Amidst escalating fuel prices and grievances from the oil industry regarding the surge in smuggled oil products, the government has accelerated the process of deregulating petroleum product prices. This move aims to shift the burden of public criticism onto oil marketing companies (OMCs).
In response to this directive, the petroleum division has instructed the Oil and Gas Regulatory Authority (Ogra) to present an analysis and implications report on the deregulation of petroleum products within three days. Specifically, the presentation should address aspects such as in-country freight equalisation margins (IFEM) and related factors.
As per a senior government official, this directive follows urgent directives from the Prime Minister’s Office to finalize a deregulation framework for the petroleum sector swiftly.
Despite constraints on altering fixed tax rates under the donor-dictated pricing mechanism, the government has faced public backlash over rising petroleum product prices. Presently, the government’s role is limited to announcing bi-weekly fuel prices calculated by Ogra to reflect international market trends and exchange rates.
Additionally, the oil industry has criticized the government for its inaction against extensive smuggling of low-quality and cheaper products, particularly from Iran. This smuggling adversely impacts the regulated oil industry’s market share and profitability and results in an annual revenue loss of over Rs230 billion for the government.
Regarding pricing independence, an official clarified that while the final deregulation framework requires approval from the federal cabinet and the Special Investment Facilitation Council (SIFC), deregulation of petrol and high-speed diesel (HSD) prices would entail an end to uniform pricing nationwide. Instead, oil companies would be free to set prices for different cities and towns.
Legally, petroleum prices are already deregulated, with the government only notifying retail kerosene prices. The government notifies tax rates and fixed profit margins for other products like petrol, HSD, and light diesel oil, while Ogra and the Ministry of Finance adjust IFEM for uniform pricing.
Moving forward, the complete deregulation of petrol and diesel prices, including OMCs’ commissions, is likely similar to the HOBC model. Ogra and the Competition Commission of Pakistan would play a larger role in ensuring product quality, availability, and a competitive market environment.
This would lead to varying prices across cities and companies, with consumers near ports and refineries benefitting from cheaper rates, while others pay higher prices due to transportation costs.
Meanwhile, the Oil Companies Advisory Council (OCAC) has cautioned the government about the significant threat posed by smuggled petroleum products from Iran. This influx not only causes revenue loss but also jeopardizes planned investments in refinery expansion and upgrade projects, potentially impacting the country’s energy sector.
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