Fuel issues: Plan being worked out for import of higher quality fuel

Price of superior fuel would be Rs9.6 per litre higher; approval sought from ECC

ISLAMABAD:

In light of the industry’s concern over importing fuel of lower quality, the petroleum ministry has worked out a plan to allow oil marketing companies (OMCs) to import high quality petrol, the price of which would be about Rs9 per litre higher compared to existing petrol prices.

Formal approval for this decision has been sought from the Economic Coordination Committee (ECC).

Senior government officials familiar with the development said that this would help in reducing the adverse environmental impact of lower emissions as a result of better engine hygiene while simultaneously providing enhanced motor vehicle performance.

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Pricing system

The existing price of petrol is Rs69.79 per litre and higher quality petrol amounts to Rs79.39 per litre with an increase of Rs9.57.

According to the proposed mechanism for RON 92 Premium Motor Gasoline (PMG) price, there will be inland freight charges on the product at Rs3.41 per litre which is being charged on existing petrol price.

At present, the distribution margin is Rs2.35 per litre and the dealer’s margin is Rs3.08 on petrol. The government has proposed to impose Rs6.40 per litre distribution and dealers’ margin on 92 RON PMG. Additionally, petroleum development levy will be charged at Rs10 per litre.

Official said that marketing of petroleum products in Pakistan is being deregulated gradually for the last 15 years. In the first phase, import and pricing of fuel oil was fully deregulated.

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Import of remaining products like diesel and petrol has also been deregulated and oil marketing companies are allowed to procure them from international markets on cost competition basis as per their commercial requirements. However, pricing of these products is being monitored by the Oil and Gas Regulatory Authority (Ogra).

Necessity to improve

Pakistan needs to improve both quality and standards of the petroleum products being produced by local refineries and imported by the oil marketing companies. Accordingly, efforts are under way for introducing diesel oil conforming to Euro-2 specifications positively by mid-2017.

Currently, 87 RON PMG is being used in the country, however, the government is also considering import of 92 or higher RON PMG in the country. The first step in line with international practices would be to start the production of 92 RON PMG, which is marketed around the world.

Introduction of this fuel in a deregulated framework will accrue benefits on account of supply sustainability, customer choice and improved tax.

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Comparative price build up for existing 87 RON PMG versus 92 RON PMG shows that on a tentative basis, the proposed fuel would be high in price from the main grade fuel by Rs9 per litre.

Subject to government approval, the process is expected to be completed within three months. In order to undertake a controlled experiment for future deregulation, petroleum ministry has proposed to the ECC that oil marketing companies may be allowed to market 92 RON PMG in a deregulated environment on their own risk.

Published in The Express Tribune, October 18^th, 2015.

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