Fixing oil prices

Just days after the Oil and Gas Regulation Authority (Ogra) stunned the nation with a hefty increase in the price of petroleum products, a report in this newspaper suggested that the body has all but acceded its duties to the oil industry in setting prices. This spells more bad news for consumers who are sure to see price increases in the months ahead, as it is in the interest of oil companies to keep prices high. With Ogra set to play a nominal monitoring role, the path is clear for oil refineries and marketing companies to reap profits at the expense of consumers. One wonders why the government is letting those with the greatest stake in keeping prices high have the authority to set prices. Given the cartel-like nature of the market and given how prices were set when the oil companies advisory committee was in charge, one would have thought that the government would wrest this power away from the oil and refining companies.

Consumers understand that the increase in the world prices of oil adversely affect an oil-importing country like Pakistan. What they would like to see, though, is transparency in the pricing mechanism. By secretly blurring its role, Ogra has acted in a manner that violates its own mandate — which includes looking out for the interests of all stakeholders, including consumers. While leaving pricing to market forces, as is done in several developed countries, may be fine from the point of view of economics, Pakistan’s economy is dominated by cartels and companies that often abuse their monopoly power. And they do this because the industry regulators – Ogra in this case – don’t do a very good job of safeguarding consumer interest. One must also question why, as the report points out, this was done in a hush-hush, secretive manner. Such matters, especially oil prices which affect everyone and have a major impact on the economy, must always be debated openly in parliament.

Published in The Express Tribune, November 5^th, 2010.