The Oil Companies Advisory Council (OCAC) has warned that a forced reduction in the price of diesel is going to hit the oil industry hard as it is facing a loss of Rs11 billion.
Oil industry officials call the price cut “a political decision” that will prove to be a landmine for the upcoming caretaker government, which will be installed before elections later this year.
They said that the oil sector was already experiencing a financial crunch owing to low margins, which the government has not raised in line with an approved formula following a surge in inflation.
They cautioned that if the oil industry suffered such shocks, they would be unsustainable and cause an oil crisis in future due to low stocks as the forced reduction in prices would discourage companies from oil import, the officials said.
In a letter sent to the Oil and Gas Regulatory Authority (Ogra) chairman, OCAC Chairman Waqar Siddiqui said that based on stock levels at the end of previous fortnight and expected local production, the manipulation in pricing caused an inventory loss to the tune of Rs11 billion, which was not sustainable and would severely impact the already crippled oil industry.
“The industry is facing a severe financial crunch due to insufficient margins, increased markup, high global prices, depreciation of the rupee, etc and will not be able to manage uninterrupted fuel supplies if this manipulation in pricing is not rectified through an immediate price revision,” he said.
The OCAC chairman pointed out that the price of high-speed diesel (HSD) had been reduced by Rs7 per litre for the second fortnight of July 2023 despite the fact that the price was increasing based on a formula approved by the government.
Instead of passing on the increase or absorbing the impact of the increase by reducing the petroleum levy, the price was “unilaterally and unjustly reduced by applying an inaccurate premium,” he argued, adding that as per the approved mechanism, in case of no import by Pakistan State Oil (PSO) during a particular fortnight, the premium and other incidentals for the previous fortnight had to be applied.
The government has implemented this policy to ensure that the industry gets accurate recovery for the inventory that has been acquired at rates prevailing in the previous fortnight. Since PSO did not import any HSD during the first fortnight of July 2023, the previous premium, ie $11.50 per barrel, should have been used in price computation for the second fortnight, the OCAC chairman stressed.
However, he said, Ogra used the premium of $4.20 per barrel. “This arbitrary revision of premium is against the essence of the ECC decision.”
Published in The Express Tribune, July 18th, 2023.
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