Oil industry denounces restrictive fuel pricing

Says deviation from set formula causes loss of millions of rupees

ISLAMABAD:

The oil industry has aired serious concern over what it says is restrictive pricing of motor fuels that has caused them a loss of millions of rupees.

In a letter sent to the Oil and Gas Regulatory Authority (Ogra) chairman, the Oil Companies Advisory Council (OCAC) – an industry lobby comprising refineries and oil marketing companies (OMCs) – expressed fears over deviation from the government-approved formula for price computation effective from October 16, 2024.

In order to manage the price, it pointed out, customs duty on high-speed diesel was reduced from Rs15.18 to Rs13.26 per litre, a decrease of Rs1.92, which will lead to an approximate loss of Rs700 million during the second fortnight of October.

In addition to the forced reduction in customs duty, the inland freight equalisation margin (IFEM) was also slashed by Rs3.04 and Rs4.07 per liter for high-speed diesel and motor gasoline (petrol), respectively.

The reduction was made possible by including the adjustment to the refinery regulatory duty amounting to Rs3 billion during the current fortnight. It will expose OMCs to less recovery of approved freight costs.

It is pertinent to mention that Ogra, while including the recoveries related to line fill financing costs, pipeline losses, etc. has always stressed that adjustments should be evenly spread out over multiple pricing periods in order to avoid major fluctuations in IFEM.

“We recommend that Ogra should stick to its words and ensure that all adjustments, to and from the industry, must be evenly spread out over multiple pricing periods so as to avoid unnecessary exposure for the industry,” the OCAC said.

“We would like to emphasise that manipulation of oil prices is not sustainable and will add to challenges to the industry, which is already constrained due to smuggling, high financing costs, exemption from sales tax, high turnover tax, insufficient margins and several other factors.”

The advisory council emphasised that to ensure viability of the industry and avoid supply chain difficulties, immediate revision should be made in prices based on the formula approved by the government.

“Urgent support is requested for immediate revision in prices and to ensure that the pricing formula is implemented in true letter and spirit,” it added.