ISLAMABAD: The government is learnt to have secretly allowed oil refineries and oil marketing companies (OMCs) to fix monthly ex-refinery and ex-depot sale prices for diesel, petrol and aviation fuels, with the potential of dramatically increasing the prices of petroleum products by a maximum of Rs3.5 per litre.
This has been confirmed in writing to the federal government by the Oil and Gas Regulatory Authority (Ogra) and Pakistan State Oil (PSO).
The critical move is learnt to have been discussed in a meeting of the Economic Coordination Committee (ECC) held on October 15 with Finance Minister Dr Hafeez Shaikh in the chair.
But, the scandalous aspect of this exercise is that the decision, which would affect the lives of 180 million people across Pakistan, is being kept secret.
The decision was quietly sent to the federal cabinet for formal ratification – no debate – before making it public.
Necessary amendments are also being made in the existing Ogra Ordinance of 2002, reducing its role to just a ‘monitor’ without any defined powers to check oil barons and their companies who will now have sweeping powers to determine oil prices.
The ECC is also learnt to have given sweeping powers to top officials of the petroleum ministry, allowing them to announce this new pricing formula at an ‘appropriate time’.
Official documents exclusively available with The Express Tribune show that the decision was taken on an official summary of the petroleum ministry subject ‘Review of Petroleum Products pricing formula’.
The summary, it is learnt, had been lying before the ECC for the past six months for approval for changes in oil products’ new pricing mechanism.
The summary had earlier been deferred a couple of times after ECC members raised serious objections: they believed that strengthening oil barons’ hands might wreak havoc with people’s interests.
Official documents showed that a committee was constituted under the chairmanship of the Planning Commission with a representative each from the ministry of petroleum and Ogra to determine the impact of deregulation and frame modalities for deregulation to determine the impact of this new decision.
A meeting of the committee was convened to discuss certain issues.
Due to a variation in the numbers, the joint committee had directed Ogra and the PSO to accurately work out the impact of deregulation on consumer prices.
According to Ogra and PSO, the location-wise impact of the deregulation of prices of petroleum products will vary between Rs1.5 and Rs3.3 a litre on motor spirit/petrol and between Rs1.31 and Rs3.5 per litre on high-speed diesel (HSD).
Later, when the summary was taken up for a final decision by the ECC, it was pointed out that in its current form, the Ogra Ordinance 2002 did not allow the authority to monitor the prices of de-regulated petroleum products. It only acts as a regulator.
It was said that suitable amendments were, therefore, needed in the ordinance to enable Ogra to monitor deregulated petroleum products’ prices.
The ECC was further informed that with the introduction of new petroleum product pricing formula, inland freight equalisation margin (IFEM) will fall under ‘controlled deregulation’ because Ogra will notify it from one destination to another, but refineries and OMCs will determine the petroleum prices on a monthly basis, whereas Ogra will just monitor it.
The ECC was told that import prices will be the benchmark for prices and refineries and OMCs will not be allowed to charge more than the set “benchmark price” to protect consumer interests.
Earlier, the ministry of petroleum had urged the ECC to allow refineries and OMCs to fix and announce on a monthly basis the ex-refinery and ex-depot sale prices for motor spirit, HOBC, light diesel oil and aviation fuels on a “competitive basis”.
It had further proposed that after deregulation of petroleum products prices, there will be no restriction on the number of storage depots and OMCs will maintain depots in accordance with their commercial needs.
Thirdly, the OMCs and dealers’ margins on high-speed diesel already fixed in absolute terms as Rs1.35 and Rs1.5 per litre, respectively, will continue as per existing practice.
The ECC said that Ogra will submit a quarterly report on pricing of petroleum products indicating the trend in international market and petroleum product prices announced by OMCs/refineries along with their analysis/findings and suggestions, if any on regular basis to ECC.
All OMCs and refineries will have to submit detailed information to Ogra in this regard.
Necessary amendments and provision in the Oil and Gas Regulatory Authority Ordinance will be made to empower Ogra for monitoring the pricing mechanism under a deregulated scenario.
In the meantime, Ogra will be authorised to perform above monitoring functions till the process of amendments in the ordinance is complete.
Published in The Express Tribune, November 4th, 2010.
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