Govt agrees to deregulate oil prices

In new policy, market forces will determine margins of OMCs and refineries

Zafar Bhutta August 05, 2022
The government has recently approved Rs30 billion to rescue PSO from a liquidity crisis as its receivables have crossed Rs600 billion. Photo: file


The government has agreed to give a free hand to the oil industry to set petroleum product prices by implementing a deregulation mechanism under the new proposed oil policy effective November 1, 2022.

At present, the prices of petroleum products like petrol and high-speed diesel (HSD) are regulated while the price of furnace oil is deregulated.

In a meeting held on Wednesday, the executives of oil refineries, Minister of State for Petroleum Musadik Malik, Energy Task Force Chairman Shahid Khaqan Abbasi and officials of the Oil and Gas Regulatory Authority (Ogra) reached an agreement.

Sources told The Express Tribune that all sides agreed that both the products produced locally by oil refineries and those imported by Pakistan State Oil (PSO) would compete in the local market.

At present, PSO imports 50% of petroleum products whereas 50% of products are produced locally by oil refineries to meet energy demand of the country.

Sources said that there would be competition between PSO and local oil refineries in the country’s market.

Recently, the government has agreed to raise margins of oil marketing companies (OMCs) that would be effective till November 1, 2022.

After implementation of the new oil refinery policy, the government will withdraw the margins set for the OMCs including PSO.

The government also recently increased margins of dealers to Rs7 per litre that would continue to remain in place after the implementation of the new oil refinery policy.

In the new policy, market forces will determine the margins of OMCs and oil refineries, officials said.

In the proposed policy, the government had reduced the regulatory duty from 5% to 2.5%, which was later increased to 5% on the import of crude oil.

According to the agreement, officials said, the government agreed to reduce the duty to zero in the new oil refinery policy.

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“If the government does not withdraw the duty, then the new refinery policy will lose its significance for the refining sector,” a senior government official said.

Officials said that the government had already increased the deemed duty on petrol and diesel to 10%. However, the entire collection was going into the national exchequer.

The refineries and the previous government of PTI had been locked in a dispute on the formula of allowing incremental revenue to the oil refineries for upgrading their plants.

The previous government agreed to allow 30% of the total incremental revenue to the refineries for investment in plant upgrades.

However, some key ministers from Karachi had been in tussle with a local refinery, which created hurdles in the way of approving this mechanism.

Now, the government will allow 30% of funds from the incremental revenue collection to be invested in upgrading plants.

Local refineries need $4 to $5 billion in total investment for upgrading their plants. Byco refinery has already started work on upgrading the plants.

Regarding the question of monopoly of the oil sector, oil industry officials ruled out any such situation. They said that PSO had 50% market share whereas the remaining 50% share was held by the local refineries.

PSO is a state-owned company and therefore, the government has complete control over this entity.

They said that the new refinery policy would also be helpful for PSO that was facing financial crunch and the risk of default on international payments.

The government has recently approved Rs30 billion to rescue PSO from a liquidity crisis as its receivables have crossed Rs600 billion.

The new oil refinery policy will provide PSO with the freedom to set margins and compete with other refineries.

The oil industry officials said that competition would also result in competitive oil prices for the consumers.

Published in The Express Tribune, August 5th, 2022.

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