OGRA’s concerns about profit margin deregulation addressed

Published: October 6, 2017
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A man refuels his car at a petrol station. PHOTO: REUTERS

A man refuels his car at a petrol station. PHOTO: REUTERS

ISLAMABAD: The Petroleum Division has said that it has addressed concerns of the Oil and Gas Regulatory Authority (Ogra) and Planning Division about planned deregulation of margins on high-speed diesel (HSD) sales for oil marketing companies (OMCs) and dealers.

The Planning Division and Ogra had opposed the deregulation which forced the Economic Coordination Committee (ECC) in its last meeting to put off decision on a summary sent by the Petroleum Division.

It moved the summary again claiming that concerns of the regulator and Planning Division had been addressed.

The Petroleum Division said it had conveyed to Ogra and the Planning Division that OMC margins may be deregulated whereas other cost components included in the ex-depot sale price such as the ex-refinery price, inland freight equalisation margin and taxes would be determined in line with the existing mechanism, a senior Ogra official told The Express Tribune.

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The Petroleum Division said the proposed deregulation would be done in phases and it would be subject to certain conditions including the increase in commercial storage capacity of the OMCs from existing 20 days to 30 days and putting in place an online inventory system.

OMCs will also be required to add fuel markers to HSD within a specific time frame in order to avoid adulteration and bear its cost out of their margins.

Ogra has been tasked with developing a mechanism to monitor the commercial stock situation, inventory and fuel marker system of the OMCs.

The Planning Division was not in favour of deregulating the HSD margins and recommended that margins on petrol and diesel should be based on the Consumer Price Index. This, it said, would reduce the chances of establishing a monopoly by the OMCs and dealers through fixing high retail prices.

Ogra said the Petroleum Division had proposed an increase in profit margins thrice since November 2014. However, no financial impact of the deregulation on OMC profits and consumers had been worked out, which should be assessed.

The regulator pointed out that the government had not passed the full impact of increase in international crude prices on to consumers and the margin deregulation would hurt the government’s ability to keep petroleum prices unchanged.

The deregulation would also allow associations of dealers at the district level to set prices independent of the federal government and oil companies.

Ogra argued that the oil industry was already highly profitable and deregulation would provide extra profit at the expense of consumers.

Pakistan State Oil’s profit before tax stood at Rs12.3 billion in 2015, which increased to Rs16.28 billion in 2016. Shell Pakistan’s pre-tax earnings rose from Rs2.3 billion in 2015 to Rs5.7 billion in 2016, Hascol’s profit jumped from Rs1.19 billion to Rs2.15 billion and Attock Petroleum’s earnings rose from Rs4.53 billion to Rs5.6 billion.

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In the first phase, the Petroleum Division has proposed deregulation of margins on HSD, which is widely used in agriculture production and transport vehicles.

In the next phase, margins on petrol, which is mostly used in cars and generators, will be deregulated to encourage investment in the industry.

Currently, the OMCs collect Rs2.41 per litre as margin on the sale of petrol and HSD. Dealers charge Rs3.16 on every litre of petrol and Rs2.67 on a litre of diesel.

Pakistan consumes around 22 million tons of petroleum products in a year and more than half of them comes through imports.

A senior government official revealed that the Petroleum Division had recommended an increase of Rs0.14 per litre in margins on petrol and diesel for the OMCs. For the dealers, it proposed an increase of Rs0.19 per litre and Rs0.16 per litre respectively.

Published in The Express Tribune, October 6th, 2017.

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