Govt to bear brunt of Rs23b to maintain POL prices

ISLAMABAD:

The government is going to bear another brunt of Rs23 billion for the first fortnight of April in order to maintain the existing petroleum prices amid political turmoil in the country and swelling crude oil prices in the wake of the ongoing Russia-Ukraine war.

Earlier, the government had paid a heavy price of Rs28 billion for ongoing month of March due to higher global oil prices.

Prime Minister Imran Khan had announced a reduction of Rs10 per litre in the petroleum prices and that the new rates would remain in place till the FY23 budget.

The global crude oil prices had soared to around $112 per barrel from $94 a barrel before the start of the Russia-Ukraine war.

The war has also led to a drop in the global stocks of diesel and other distillates to the lowest seasonal level since 2008.

According to the US Energy Information Administration, the distillate fuel oil inventories in the United States fell by 21% to 30 million barrels, which were below the pre-pandemic five-year seasonal average and at the lowest level since 2005.

The stocks in Europe dropped 8% to 35 million barrels, which were also below the pre-pandemic five-year average and at the lowest level since 2008.

Sources told The Express Tribune that the increase in global oil prices and depreciation of the rupee against the dollar had pushed the price of diesel up by Rs37.9 and petrol Rs20 per litre for first fortnight of April.

However, the government had decided to keep oil prices unchanged till the next budget due to political turmoil in the country and therefore, the government would have to bear this possible increase in prices of petrol and diesel.

In order to maintain the existing oil prices, the government would have to pay price differential claims worth Rs23 billion for the first fortnight of April, officials said.

They said that the rupee had depreciated by 1.76 per cent from Rs178.83 to Rs181.97, registering a decrease of Rs3.14 that had also pushed the prices of petroleum products further up.

In addition, there had been an increase in the rate of premium on imports of petrol and diesel that would also push the prices up.

The premium on petroleum products imports is up due to shortage of oil globally after the Russia-Ukraine war.

Now, the government had revised the premium rate upwards keeping in view higher rates in the international market.

The Economic Coordination Committee of the Cabinet had recently approved revision in premium on diesel and petrol imports amid higher global oil prices.

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The premium (freight and supplier's margin) is a lump sum cost of the supplier/exporter, which is either negotiated or offered in a tender process. The Pakistan State Oil, being a public sector company, is obligated to procure imports in accordance with the PPRA rules/regulations.

As per the existing arrangements, the PSO imports its Mogas requirements entirely through spot tendering, while the bulk of its high speed diesel imports is made from Kuwait Petroleum Corporation (KPC) following a long-term agreement, revised/reviewed biannually.

The premium on a long-term basis is lesser than the tendered premium. Presently, the KPC premium for PSO's HSD cargoes for Jan-June, 2022 is $2.40 per barrel.

The Oil Companies Advisory Council had stated that the HSD premiums for the industry had been historically higher than PSO.

It had informed that the oil industry was importing the HSD at a relatively higher premium as compared to the PSO's benchmark premium.

The remaining OMCs were facing loss due to this as the difference went up sharply in the current prevailing geopolitical situation.

The PSO's tender for the second fortnight of March 2022 opened at $8.45 per barrel whereas premiums were even higher in the open market. The PSO did not receive any offer in their HSD tender for the first fortnight of April 2022.

Since the current HSD price is benchmarked on the basis of substantial imports by PSO from KPC ($2.4 per barrel), any OMC importing at the PSO tendered premium ($8.45 per barrel) would have incurred a loss of up to Rs6.8 per litre, creating an unsustainable position for importers.

Therefore, the OMCs had requested to urgently review this matter and revise the benchmarking process accordingly to save the industry from collapse.

Under the present volatile market condition due to war between Russia and Ukraine as well as high demand of HSD in the forthcoming harvesting season during March-May 2022, the oil industry said that the existing benchmarking had been unsustainable and the OMCs would have sustained substantial losses, being unable to import the HSD leading to potential shortages of it across the country.

The Petroleum Division, after consultation with Ogra in a number of meetings and on the basis of its recommendations in these meetings, had informed the ECC that the KPC premium need to be excluded from price computation for a period from April to June 2022.