Revision in oil pricing formula likely: Oil marketing companies to get increased margins

Petroleum ministry forms body to implement changes.

ISLAMABAD:

The Petroleum Ministry has agreed to revise the oil pricing formula in a bid to increase margins of Oil Marketing Companies (OMCs) and implement the decision of deregulating prices of petroleum products.

The ministry has also formed a high-level committee, headed by Secretary Petroleum Ijaz Chaudhry, to find ways to meet the demands of oil refineries which are seeking deregulation of petroleum product prices.

Representatives of OMCs and refineries held separate meetings with Petroleum Minister Dr Asim Hussain on Tuesday.

Sources told The Express Tribune that the petroleum ministry offered OMCs an increase in margin on petrol from Rs1.5 to Rs2 per litre. However, the ministry agreed to include the inflationary impact in the margin for high-speed diesel, which currently stands at Rs1.35 per litre.

A formal approval will be sought from the Economic Coordination Committee (ECC) of the cabinet.

Sources said OMCs had demanded a margin of Rs10 per litre on petrol and high-speed diesel, claiming that the cost of doing business had increased due to a rise in power tariff, financial charges on price differential claims and 0.5 per cent turnover tax on sale of petroleum products. However, the ministry turned down the demand, prompting OMCs to scale down the estimated margin to Rs4 per litre. But that too was rejected.

In a separate meeting, chief executive officers of oil refining companies called for deregulating prices of petroleum products. A high-level committee was constituted with representation of oil refineries. ECC has already accorded approval to deregulation of petroleum product prices and controlled deregulation of Inland Freight Equalisation Margin (IFEM). However, the decision has not been implemented yet.

ECC has also approved the price of petrol equal to the value of the imported product but this has also not been implemented. Refineries demanded that the government should continue with the 7.5 per cent deemed duty on high-speed diesel to protect the refining industry.

Representatives of refineries said the circular debt and frequent changes in the ex-refinery pricing mechanism had severely affected the petroleum sector. “ECC’s decision on revising the pricing mechanism taken in December 2010 has not been implemented and continuous increase in international crude prices has drastically reduced refinery margins,” a refinery official added.

Petroleum dealers have also demanded a high margin of Rs5 per litre on petrol and diesel compared to current margins of Rs1.5 on diesel and Rs1.87 on petrol.

Published in The Express Tribune, May 18^th, 2011.