Ogra recommended that margins should not be deregulated as a country like Pakistan could not afford to give a free hand to bigwigs of the oil industry, which may exploit the consumers.
ISLAMABAD: The Economic Coordination Committee (ECC) of the cabinet on Wednesday put off a plan to increase margins of oil marketing companies (OMCs) and petroleum dealers, fearing a hike in oil prices that could lead to mass protest and scathing criticism from political parties, officials say.
The ECC move comes following resistance to the deregulation of petrol margins from the Oil and Gas Regulatory Authority (Ogra). The deregulation will result in varying prices of petrol across the country.
Officials disclosed that the ECC was of the view that the revision in margins could result in further increase in oil prices as rates of petroleum products were likely to go up by over Rs1 per litre from the beginning of June in line with movements in the international market.
Earlier in a meeting on April 25, the ECC had tasked Ogra with conducting an assessment of the impact of deregulating petrol margins.
In its evaluation, Ogra recommended that margins should not be deregulated as a country like Pakistan could not afford to give a free hand to bigwigs of the oil industry, which may exploit the consumers.
In a deregulated mechanism, it will be difficult for the regulator and the government to monitor prices.
Officials said Ogra proposed an increase in petrol margins rather than deregulation and also supported revision in high-speed diesel margins. ECC members sought some time to examine the evaluation report.
In the April 25 meeting, the ECC took up for discussion a summary sent by the Ministry of Petroleum and Natural Resources, which sought to increase margins of OMCs and dealers as well as deregulation of margins for six months on a trial basis.
ECC members backed the increase in margins but fiercely opposed deregulation, which would lead to different prices across the country and provide an opportunity to the oil mafia to pocket billions of rupees from the consumers without any accountability.
They were surprised to know that there was no mechanism to tighten the noose around oil mafia if they manipulated the deregulation of margins. They were also upset that there was no system in place to implement the deregulation plan and check how the oil industry would determine the margins.
Earlier, the petroleum ministry had proposed an increase of Rs0.16 per litre in high-speed diesel margin, but OMCs did not agree. In a fresh summary, a slightly higher increase of Rs0.19 was proposed and for dealers an upward revision of Rs0.40 was recommended.
A study, conducted by the Pakistan Institute of Development Economics, has recommended an annual review of OMC and dealer margins based on markup on assets and the Consumer Price Index (CPI) of the State Bank of Pakistan.
The Ministry of Finance, however, suggested that margins should be left unchanged until prices of petroleum products started falling in a bid to avoid public criticism.
Published in The Express Tribune, May 30th, 2014.
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