High octane to cost more in Sindh after freight margin deregulation

Price of the fuel used in luxury vehicles will drop in Punjab.

ISLAMABAD:

High octane blending component (HOBC), a fuel mostly used in luxury and high performance vehicles, will become more expensive in Sindh and cheaper in Punjab following the deregulation of inland freight equalisation margin (IFEM), which will lead to different freight margins across the country.

A plan tabled before the Economic Coordination Committee (ECC) of the cabinet reveals that HOBC price will go up by Rs1.49 per litre (1.19%) in Karachi after the freight margin is deregulated. However, the fuel will become cheaper by Rs3.71 per litre (2.97%) in Mahmood Kot (Punjab) where Pak Arab Refinery Company (Parco) is situated. However, the plan has not yet been approved.

According to documents, the Ministry of Petroleum and Natural Resources told the ECC that a judicial commission, constituted by the Supreme Court, had recommended deregulation of the freight margin in a controlled and phased manner.

HOBC, being used in luxury vehicles and produced only by Parco in a very small quantity of about 1,000 tons per month, had no direct impact on common man, the ministry said. “It is, therefore, proposed that IFEM may be removed from HOBC and its ex-depot price will vary from location to location across the country.”

Quoting estimates given by the Oil and Gas Regulatory Authority (Ogra) and Pakistan State Oil (PSO), the ministry said sale price of HOBC would drop in the range of Rs0.37 to Rs3.71 per litre at Sihala, Machike and Mahmood Kot depots and increase by Rs1.49 per litre at Keamari (Karachi) based on prices of June 1 according to the existing uniform price system. On June 1, HOBC price stood at Rs125.07 per litre.

However, Ogra will continue to monitor prices of petroleum products along with their transportation costs. At present, the regulator reimburses the transportation cost and price differential backlog of HOBC to Parco as approved by the ECC on August 16, 2011.

After removal of freight equalisation margin from HOBC, Parco will recover the fuel transportation cost as worked out by Ogra through its ex-refinery price.

Sources said the ECC members, in a recent meeting, had opposed a proposal to recover HOBC price differential backlog of previous years from consumers of other petroleum products and, therefore, the plan for deregulating the freight margin was deferred. Now, a revised plan will be submitted to the ECC for approval.

In light of the government’s policy of deregulation and judicial commission’s recommendations, prices of petroleum products – motor spirit (petrol), HOBC, light diesel oil and jet fuels – were deregulated with effect from June 1, 2011 subject to the condition that the prices will be fixed in accordance with the actual import rates. Ogra was assigned the role of monitoring the deregulated products.

Published in The Express Tribune, July 15^th, 2012.