Govt may keep petroleum prices unchanged

Move aimed at shielding oil industry from hefty losses

Zafar Bhutta May 29, 2020
PHOTO: REUTERS

ISLAMABAD: The government is working on different options including keeping petroleum product prices unchanged in June in an effort to bail out the oil industry, which fears a worsening oil shortage due to heavy inventory losses.

Sources told The Express Tribune that the Petroleum and Finance Divisions were considering three options as an oil crisis was looming due to low supply of petroleum products by oil marketing companies (OMCs), which may face heavy inventory losses if the government further slashes petroleum prices in June.

First option is to maintain the existing petroleum product prices for June to shield the oil industry from hefty losses. There are reports the government may cut petroleum prices by up to Rs10 per litre.

The oil industry had warned the government that there would be acute shortage of petroleum products in June because of cheaper imports by Pakistan State Oil (PSO), which restricted refineries from producing oil products.

Petroleum prices in Pakistan are linked with prices of cargoes imported by PSO. The state-run company imported three cargoes of petrol in the first half of May, which would become the basis for petrol price in June. The ex-refinery price for petrol is calculated at Rs19 per litre based on prices of cargoes imported by PSO.

On the basis of high-speed diesel import prices for May, the ex-refinery price is calculated at Rs28 per litre including the deemed duty. Average crude price, including cost and freight (c&f), for refineries may be over $30 per barrel for May.

Officials revealed that the oil industry had informed the government that it would suffer heavy losses if petroleum prices were revised based on prices of imported oil cargoes.

They said it would force the refineries to operate at minimum capacity in a bid to cut losses and avoid sales of products at highly negative margins.

The oil industry has now asked the government to freeze ex-refinery prices of petroleum products for June at May’s levels in order to help the industry avoid losses and stave off an oil crisis in the country.

Sources said the Petroleum and Finance Divisions were discussing to maintain the existing petroleum product prices for June. It would be an ideal situation for the government to leave prices unchanged, which would help it to increase taxes on petroleum sales and enhance revenue collection.

According to officials, OMCs had put their import plans on hold because of uncertainty about petroleum prices and on fear of losses due to ex-refinery prices based on PSO imports.

In another option, the government is considering reviewing the oil price formula. It may revise the formula based on average import parity price instead of linking prices with the cost of imported cargoes.

It would help to normalise the situation for the oil industry and OMCs would place orders to meet demand in the country.

Third option being considered is that the government should switch to fortnightly revision in petroleum prices instead of monthly review to bail out the oil industry and ensure smooth fuel supply.

The Oil Companies Advisory Council (OCAC) had approached the government, asking it to switch to fortnightly price review, which would help the oil industry to ward off losses.

The oil crisis has already emerged. The Oil and Gas Regulatory Authority (Ogra) has sent letters to the OMCs, instructing them to ensure oil supply in different parts of the country.

On May 25, the Petroleum Division stated that the country had a stock of 255,000 tons, which was enough to meet demand till June 4.

Taking notice of reports of petrol shortage in Karachi, the division stated that sufficient stock of petrol was available. A stock of 11 days was available and a vessel carrying around 58,000 tons of petrol had berthed at port, it said.

OMCs were strictly directed to enhance their logistics networks to upcountry areas to avoid any untoward situation.

Published in The Express Tribune, May 29th, 2020.

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