World oil prices: Plan under study to pass on full impact to consumers

Ministry wants to empower OGRA to notify prices without seeking approval.

ISLAMABAD:

A plan is under study to pass on full impact of global oil prices to consumers without making any cut in taxes in case world crude prices swell. In this connection, the Oil and Gas Regulatory Authority (Ogra) will be granted powers to notify prices without seeking any advice from the government.

The plan was tabled by the Ministry of Petroleum and Natural Resources in a meeting of the Economic Coordination Committee (ECC) last week. However, the proposal has not yet been approved, say officials.

Under the prevailing oil pricing mechanism, Ogra sends a summary to the petroleum and finance ministries, which then give a reply after approval of the prime minister, advising Ogra whether to increase or reduce prices, which may not be in line with fluctuations in the international market.

In the last financial year ended June, the government cut petroleum levy several times in order to provide a cushion to the consumers against high crude prices. These days, international crude prices are going downwards due to global recession and prices in the country are also falling because of a cap on petroleum levy.

“In the proposed mechanism for oil price revision, Ogra will not be able to cut petroleum levy on oil products if prices go up, so consumers will not enjoy any type of subsidy,” an official of the petroleum ministry said.

According to documents, the petroleum ministry proposed that an automatic oil price adjustment system may be introduced based on fluctuations in the international market. In this system, Ogra will monitor and notify prices based on the current petroleum levy without seeking any advice or approval from the government.

“However, Ogra will continue to provide a copy of the price revision to the petroleum ministry for its information,” the plan showed.

At present, on high octane blending component, the petroleum levy is Rs14 per litre, on motor spirit (petrol) Rs10, on high speed diesel Rs8, on kerosene Rs6 and on light diesel oil Rs3.

The petroleum ministry also asked the ECC to approve a shift from the fortnightly oil price revision to a weekly review, but the decision was deferred after Ogra warned that it would lead to oil shortage and overcharging consumers for petroleum products.

Ogra told the ECC that the regulator was receiving several complaints of oil shortage and overcharging after implementation of the fortnightly price review.

Earlier in the first week of April, the ECC had approved a summary of the petroleum ministry, proposing oil price review on a fortnightly basis instead of the monthly revision in the wake of continuous increase in the international crude market. The ministry came up with the plan following demands from oil refineries.

Published in The Express Tribune, July 10^th, 2012.