OGRA to get new powers to police manipulative behaviour

Refineries likely to be the regulator’s first target for scrutiny.

ISLAMABAD:

As the government begins to deregulate prices across the energy sector, the Oil and Gas Regulatory Authority (Ogra) is beginning to utilise its recently enhanced powers to move against allegedly manipulative, anti-consumer behaviour amongst the nation’s four major oil refineries. Refineries have been accused in the past of being unfair in determining their supplies to oil marketing companies, which in turn is where most ordinary consumers get their fuel supplies from.

Under existing competition laws, while companies are allowed to enter into long-term contracts with buyers, they are not allowed to discriminate between buyers based on ownership. Some companies which own both refineries and oil marketing companies have been accused of favouring their own distribution company over their competitors, a behaviour that would be illegal under the Competition Act of 2010.

“The decision has been taken to break cartel of oil refineries’ whose sister oil marketing companies (OMCs) may get more petroleum products compared to other OMCs,” sources told The Express Tribune.

With the advent of deregulated prices in the energy sector, Ogra is expected to step up its vigilance against oligopolistic or anti-competitive behaviour, to ensure a level playing field, particularly for new entrants into the oil market.

While larger, more established OMCs have long-term sales agreement with refineries, newer companies often do not have such arrangements. “Ogra as regulator will monitor whether OMCs with sales agreements are getting their shares of fuel supply from refineries,” sources said adding that Ogra will also ensure provision of fuel to new OMCs.

In order to fulfil its new regulatory duties, Ogra officials have asked for the power to monitor fuel supplies from refineries to oil marketing companies so that they can detect any manipulative activity. The government partially deregulated oil prices on June 1, two days ahead of the announcement of the federal budget for fiscal year 2012. After deregulation, oil marketing companies have been allowed to set their own prices within a range determined by imported oil prices. Pakistan State Oil’s (PSO) import prices of the previous month will be used as the benchmark to set new oil prices for oil marketing companies in coming month

However, the government has yet to deregulate the inland freight equalisation margin, a cross-subsidy that helps equalise prices throughout the country. Without it, oil prices would be higher in the northern part of the country and lower in the southern parts, closest to the port.

Published in The Express Tribune, June 19th, 2011.