Regulating the petrol oligopoly
Nawaz Administration should keep its promise that it would focus on regulating the economy, not running it.
For the umpteenth time, the proposal to allow Ogra to levy fines for manipulative behaviour by oil companies was quashed in a recent meeting of the Economic Coordination Committee of the cabinet. PHOTO: FILE
In his first speech as finance minister, Ishaq Dar laid out the ruling PML-N’s vision for the role of the government in the economy: a state that does not participate in the market through the ownership of businesses, but acts as a strong regulator of market participants to ensure a level playing field and fair play. The Nawaz Administration appears to be hastily enacting the first half of that vision through privatisation, but appears to be actively dismantling the latter half. The Oil and Gas Regulatory Authority is only the latest to fall to the anti-regulation ideology of the PML-N.
In theory, petrol prices in Pakistan are deregulated, but in practice, the government still has considerable sway over oil pricing. This is because of the unusual structure of the oil marketing industry, which has fewer than a dozen national players, and the largest company in the industry is a state-owned entity that controls over two-thirds of the market. It is also a market that sells a necessary product where many of the suppliers can often have local monopolies or oligopolies. In short, it is ripe for market manipulation, unless the government acts to control such activity.
Far from empowering Ogra to regulate the industry, the government seems bent on rendering it powerless. For the umpteenth time, the proposal to allow Ogra to levy fines for manipulative behaviour by oil companies was quashed in a recent meeting of the Economic Coordination Committee of the cabinet. We are not certain as to why this proposal keeps getting beaten back, but we believe that the Nawaz Administration should back this most sensible idea. What is the point of having a regulatory authority if it does not have the power to levy punishments for those who violate the law?
It is high time the Nawaz Administration kept its promise to the Pakistani people that it would refocus the government’s energies on regulating the economy, not running it. They can start by empowering the regulator whose job it is to ensure that the prices that Pakistanis pay at the pump are fair.
Published in The Express Tribune, February 18th, 2014.
In theory, petrol prices in Pakistan are deregulated, but in practice, the government still has considerable sway over oil pricing. This is because of the unusual structure of the oil marketing industry, which has fewer than a dozen national players, and the largest company in the industry is a state-owned entity that controls over two-thirds of the market. It is also a market that sells a necessary product where many of the suppliers can often have local monopolies or oligopolies. In short, it is ripe for market manipulation, unless the government acts to control such activity.
Far from empowering Ogra to regulate the industry, the government seems bent on rendering it powerless. For the umpteenth time, the proposal to allow Ogra to levy fines for manipulative behaviour by oil companies was quashed in a recent meeting of the Economic Coordination Committee of the cabinet. We are not certain as to why this proposal keeps getting beaten back, but we believe that the Nawaz Administration should back this most sensible idea. What is the point of having a regulatory authority if it does not have the power to levy punishments for those who violate the law?
It is high time the Nawaz Administration kept its promise to the Pakistani people that it would refocus the government’s energies on regulating the economy, not running it. They can start by empowering the regulator whose job it is to ensure that the prices that Pakistanis pay at the pump are fair.
Published in The Express Tribune, February 18th, 2014.