Oil industry, OGRA at odds over HSD price cut

KARACHI/ISLAMABAD: The oil industry and the Oil and Gas Regulatory Authority (OGRA) are at odds over the decision to lower the price of high speed diesel (HSD) by 2.4 percent for the second half of July, a move that the industry says violates the pricing formula agreed upon last year.

The Oil Companies Advisory Council (OCAC) on Wednesday reiterated its stance, saying that the government and OGRA have violated the pricing formula decided in the Economic Coordination Committee of the cabinet meeting held on July 28, 2020.

The OCAC, earlier on July 17, showed resentment at the government's decision to reduce the price of High-Speed Diesel (HSD) by Rs7 per liter for the ongoing fortnight starting from July 16, saying it is totally unjustified and termed the decision of the government as tantamount to flouting the agreed pricing formula.

The oil industry also communicated to the government that it would bear the losses of Rs11 billion due to the forced reduction in HSD price. The oil industry demanded the immediate revision of HSD prices to avoid the loss of Rs11 billion.

However, the petroleum division has sided with OGRA and, in its rebuttal on July 18, said that the recent unwarranted resentment shown by the oil industry questioning the fair and correct reduction in prices of petrol and diesel is totally unsubstantiated and contrary to the policy guidelines issued by the government.

"The prices of petrol and diesel have been worked out strictly in accordance with the formula approved by the Economic Coordination Committee of the Cabinet on July 28, 2020. Accordingly, a reduction of Rs9 per liter in petrol and Rs7 per liter in diesel prices have been passed on to the general public on July 16, 2023."

The petroleum division said the ECC decision provides that in case of non-availability of PSO's premium, freight, or incidentals of the previous fortnight, the PSO's previous month's available incidentals of a fortnight will be applicable.

“Accordingly, PSO's previous month's available incidentals were incorporated in the price computation. However, the diesel premium applicable for the period 1st July-31st December, 2023, at $4.20/bbl of PSO was available since May 29, 2023, as mutually agreed between PSO and Kuwait Petroleum Company under a government-to-government agreement.”

“Therefore, the ECC decision has been applied in letter and spirit, and the assertions of the oil industry on pricing mechanism as well as supply disruptions are baseless and unacceptable,” it added.

However, the OCAC reiterated its stance in a communication to the government and OGRA on July 19, saying that as per the government-approved mechanism, in case of no import by PSO during a particular fortnight, premium and other incidentals for the previous fortnight must be applied.

“The government implemented this policy to ensure that the industry gets an accurate recovery for inventory which has been acquired on the rates prevailing in the previous fortnight,” it added.

“Since PSO did not import any HSD during the first fortnight of July 2023, a previous premium of $11.50 per barrel should have been used in price computation for the second fortnight. However, OGRA used a premium of $4.20 per barrel, and this arbitrary revision of premium is against the essence of the pricing formula approved by the ECC.”

The OCAC does not agree with OGRA's stance in its rebuttal, saying that the regulator has completely ignored the fact that this application of the new HSD premium has caused huge and unjustified losses to the industry.

The OCAC understands that this distorted application of the ECC decision has been done to reduce the price at the cost of the industry, and a similar approach would not have been taken if the premium was increasing.

It further says that its understanding is based on the fact that over time, some adjustments have been made that were not in line with the pricing formula and were detrimental to the oil industry.

The OCAC told OGRA that the impact of this change without the actual import of HSD at the reduced premium will cripple the industry and can impact the availability of HSD in the country.

OCAC believes that OGRA's singular focus on price reduction is damaging the industry. OCAC asked for an urgent meeting of representatives of the oil industry with OGRA officials to thoroughly assess the matter based on factual evidence, mitigate the potential impact on future pricing, and reach a mutually agreeable resolution.