Freight charges: ECC likely to rule in favour of Pak Arab Refinery

HSD price may go up Rs0.18 per litre if decision made.

ISLAMABAD:

The Economic Coordination Committee (ECC), scheduled to meet today, is likely to direct the regulator to implement the decision by the previous government to allow Pak Arab Refinery Limited (Parco) to charge freight on High Speed Diesel (HSD), leading to an increase of Rs0.18 per litre in its price.

It may be noted that Byco refinery had already approached the Competition Commission of Pakistan (CCP) over discriminatory treatment of Inland Freight Equalisation Margin (IFEM) incentives to the refineries. They had quoted the examples of Parco and Attock Refinery which were allowed to charge IFEM.

Sources told The Express Tribune that Oil and Gas Regulatory Authority (Ogra) had not implemented the decision of the previous government, saying that Parco had already reaped hefty profits due to incentives given by the federal government. The regulator had recommended that the decision regarding freight charging on HSD by Parco should be deferred until the complete deregulation of upstream and midstream sector.

“The estimated annual impact of crude transportation reimbursement on HSD will be Rs1.26 billion and per litre incidence on the HSD price will be Rs0.18 per litre. Existing annual crude reimbursement on Motor Spirit (MS) and Light Diesel Oil (LDO) is Rs945.37 million,” the regulator said.

Ogra said that since its establishment the Parco refinery had been given various protections/incentives by the federal government including a 25% guaranteed return regime and import parity price (IPP) price based on its implementation agreement and petroleum policy 1994. As a result, Parco had been earning a handsome pre-tax profit, earning a total profit of Rs74.88 billion till financial year 2011-12.

As per its IPP, Parco was allowed to include applicable inland freight from Karachi to Parco’s refinery in its ex-refinery price till the same were regulated. However, after controlled deregulation in June 2011, Parco was allowed to include crude pipeline transportation rates in its ex-refinery prices of MS, LDO and High Octane Blending Component (HOBC) instead of the applicable road freight on the same.

This decision resulted in passing the benefit of deregulation to the consumers and prevented Parco from charging higher road freights.

“In view of the federal government’s policy of liberalisation/deregulation in the petroleum sector, it is recommended that Parco crude transportation cost recovery on petroleum, oil and lubricants (POL) products should be deferred till complete deregulation of petroleum prices in the midstream and upstream sector. This proposal will add to the HSD price about Rs0.18 per litre which is not appropriate keeping in view the profitability of the refinery,” Ogra said.

Published in The Express Tribune, March 11^th, 2014.

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