New oil pricing formula opposed

An emerging tussle in power corridors is likely to push the country towards a fuel crisis at a time when the government is struggling to manage supplies and stave off disruption threatened by the Middle East war.

Sources told The Express Tribune that the former petroleum minister had entered the fray after Prime Minister Shehbaz Sharif formed a committee to review the existing oil pricing formula, which had been rejected by the oil industry with a warning that it could trigger a crisis in the country amid tensions in the Gulf.

Sources revealed that the ex-petroleum minister, who was heading the committee, proposed to delink the inventory cost-based pricing formula from the international market. Under the current mechanism, oil prices are linked with global markets and are revised every week.

So far, current Petroleum Minister Ali Pervaiz Malik and the oil industry have successfully managed oil supplies, though some countries are facing severe scarcity due to the regional disruption.

Russia has announced it will halt oil shipments across the world from April 1, which may worsen the crisis. Pakistan's leadership has also struggled to convince Iran to allow safe passage to its oil cargoes. Later, in a tweet, Deputy Prime Minister Ishaq Dar announced that Iran has allowed supply of 20 oil cargoes to Pakistan to help avert shortage.

The smooth availability of petroleum products in Pakistan is a significant accomplishment, especially given the external pressure stemming from fluctuating international prices and supply chain constraints. However, this delicate equilibrium now faces potential risks.

According to industry sources, the Oil and Gas Regulatory Authority (Ogra) held consultations with oil sector stakeholders on Sunday evening and Monday morning regarding proposed changes in the pricing formula. The response from the industry was unequivocal. All major players unanimously rejected the proposal, warning that abrupt policy changes would severely disrupt the supply chain and undermine the sustainability of an industry already operating under significant financial and operational pressures.

Recent attempts by certain quarters to intervene in petroleum pricing mechanisms and broader policy frameworks threaten to destabilise the very system that has ensured supply continuity. Proposals that appear attractive on the surface may, in practice, have serious unintended consequences, they said.

"The oil supply chain operates on commercial viability. No oil marketing company can sustainably procure products at higher international prices and sell them domestically at artificially suppressed rates. Such misalignment discourages imports, disrupts supply planning and erodes industry confidence."

According to the industry players, frequent and abrupt policy changes further compound these challenges. Stability and predictability are fundamental to supply chain management. Rapid shifts in pricing formulas or regulatory frameworks disrupt procurement cycles, inventory management and financial planning. Over time, this uncertainty weakens the sector's resilience and deters investment.

Apart from that, they said, several longstanding issues remain unresolved. These include the recovery of input sales tax and compensation for exchange losses – both of which directly impact the financial health of oil marketing companies and refineries. "Instead of addressing these structural challenges, introducing new policy distortions risks aggravating the situation."

One particularly concerning aspect of the proposed changes is the potential misalignment with prevailing international prices. In a scenario where global oil prices are declining, an inappropriate pricing mechanism could result in higher costs for domestic consumers. Such outcomes not only defeat the purpose of policy intervention but also place an unnecessary burden on the public, the industry said.

Similarly, it added, the government's limited focus on rationalising high import premiums continues to inflate consumer prices. Rather than relying excessively on imports at elevated premiums, there is a compelling case for supporting local refineries to enhance production capacity. Strengthening domestic refining capabilities would not only reduce reliance on costly imports but also improve energy security in the long term.

The financial sustainability of the oil industry is another critical dimension, the industry players said. Working capital requirements have increased significantly due to higher international prices and currency depreciation. Aligning financial limits with market realities is essential to ensure that companies can continue to procure adequate supplies without disruption.

While the idea of targeted subsidies, particularly for vulnerable segments such as motorcyclists and rickshaw drivers, may seem appealing, its practical implementation is far from straightforward. Suggestions that rely heavily on technological frameworks, such as those proposed by provincial IT bodies, must be carefully evaluated for feasibility, scalability and risk of misuse. Poorly designed subsidy mechanisms can lead to inefficiencies, leakages and administrative complications, industry officials said.

A liquefied natural gas (LNG) crisis is also looming as the second LNG terminal is going to shut down from April 2. One LNG terminal has already been closed whereas the second terminal is receiving 100 million cubic feet of gas per day, but it is also being shut down.

LNG demand will start rising from power plants in the country due to an increase in consumption of electricity in summer. Meanwhile, according to power producers, LNG prices have soared to levels equivalent to furnace oil rates.