‘Oil prices being manipulated’

Industry says govt denies them recovery of exchange rate losses and other factors

ISLAMABAD:

The oil industry has alleged that the caretaker government has manipulated the oil pricing formula again by denying them the cost of different factors including exchange rate loss in an effort to keep petroleum prices low between September 1 and 15, 2023.

Sources told The Express Tribune that the Oil and Gas Regulatory Authority (Ogra) had asked Pakistan State Oil (PSO) not to include exchange rate adjustment to its price calculation and keep it at zero. Petroleum prices are based on rates quoted by PSO.

In the earlier 15-day period reviewed for petroleum price revision, the rupee depreciated by over Rs9, which caused exchange rate loss to the oil industry that relied on imports. However, the regulator did not allow the recovery of exchange rate loss.

Read Of rising oil prices and the devaluing rupee

On the other hand, the government has increased petroleum levy on petrol from Rs55 to Rs60 per litre to meet a commitment made to the International Monetary Fund (IMF). On diesel, the levy stands at Rs50 per litre.

The regulator also permits the recovery of inland freight equalisation margin (IFEM) to the oil industry to cover the cost of transportation. IFEM on diesel has become negative where the government did not allow its collection by the oil industry.

IFEM on diesel stood at negative Rs3 per litre last month and now it is negative Rs0.96 per litre.

On petrol, the regulator allowed IFEM of Rs4.13 per litre last month, which has gone down to Rs3.77 per litre this month.

Sources said that the government would also allow the recovery of the cost of pumping petrol into a pipeline once in a year. This cost amounting to Rs4-5 per litre was due this month but the government did not give the go-ahead.

Read also Another shock: Diesel may cost Rs24 more

Referring to a letter written by the Petroleum Division, PSO in a communication to Ogra pointed out that exchange rate adjustment had been kept at zero.

For the past many years, PSO had been under a financial strain and trapped in the worst circular debt crisis. Its receivables from different clients have swelled to Rs756 billion.

Under the approved oil pricing formula, the federal government is bound to allow all adjustments like exchange rate loss to the oil industry. However, industry officials alleged that the government flouted the mechanism while fixing oil prices recently.

According to them, the artificial control over oil prices will add to the burden on the state-run oil marketing company PSO, which is already facing a liquidity crunch.

The caretaker government on Thursday hiked the price of diesel by Rs18.44 per litre effective from September 1, 2023. Similarly, the price of petrol was raised by Rs14.91 per litre.

A major reason for the increase in petrol and diesel prices was the massive depreciation of the rupee, which now stands above Rs305 to a dollar.

With the fresh revision, prices of both petrol and diesel crossed Rs300 per litre for the first time in the country’s history.

High-speed diesel will cost Rs311.84 per litre compared to earlier price of Rs293.40 per litre, an increase of Rs18.44. On the other hand, petrol will be sold for Rs305.36 per litre against earlier price of Rs290.45 per litre, up Rs14.91.

Meanwhile, the Ministry of Finance has turned down a proposal for revising margins of petroleum dealers and oil marketing companies.

During the previous government’s tenure, the dealers had announced a countrywide strike that led to a deal between them and the government to jack up the margins.

Now, the finance ministry has said that that the proposed increase in margins would have a direct bearing on end-consumers, who have already been reeling from a continuous increase in petroleum prices for the past four fortnights.

“Therefore, the proposed increase is not supported,” the Finance Division said in a letter sent to the Petroleum Division secretary.

Oil industry sources cautioned that a tussle would emerge again between the government and dealers after recent developments.

Published in The Express Tribune, September 2^nd, 2023.

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