Sudden spurt in POL prices

The government would do well to take measures to stop POL smuggling to bring stability in the supply chain

A pricing brawl between the government and the oil industry is said to be the principal culprit behind a sudden spurt in prices of petroleum products, which the former notified on Friday, catching everyone by surprise. “The government has dropped a petrol bomb,” one would imagine a newspaper headline screaming over such development. Be that as it may, the government announced a record increase in the prices of petroleum products, including petrol and diesel, ranging from 27 per cent to 66 per cent. The hike came into force immediately.

As is generally the case, the oil sector watchdog, the Oil and Gas Regulatory Authority (Ogra), moves a summary for any price fluctuations it deems necessary for every coming month which the government either approves or rejects and then notifies accordingly. Not only was this procedure not followed this time, the price revision was done four days ahead of schedule. Analysts have attributed this to a desperate effort by the government to sort out ongoing supply chain disruptions that have led to serious POL shortages in many parts of the country.

A senior government official says that the prices were increased four days ahead of the due date “to immediately pass on the impact of international price hike”. The revised prices will remain effective until July 31. He said the authorities feared that even a minor increase in sales in anticipation of a higher price would dry out petrol pumps across the country as the supply chain was already operating on very thin margins. He said the companies and retailers had already slowed down sales in some parts of the country “for inventory gains” ahead of an anticipated price increase. In their calculus, the price increase would partially offset their past losses, he said. But an industry insider thinks otherwise. This might not be as straightforward as the government anticipates. “Our price was currently cheaper than prevailing pump prices in Afghanistan and India, and some product was being smuggled to those countries as a result of this price difference,” he points out.

The government would do well to look into this aspect and take measures to stop POL smuggling to bring stability in the supply chain.

Published in The Express Tribune, June 28^th, 2020.

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