Govt to mull petroleum prices deregulation

ISLAMABAD: Prime Minister Shehbaz Sharif has decided to do away with the government powers to fix the prices of petroleum products and directed the Petroleum Division to come up with the deregulation framework to help him reach the final decision.

The deregulation of petrol and high-speed diesel (HSD) pricing would mean an end to uniform pricing across the country and the oil companies would be free to fix their own prices for different cities and towns. This may trigger unrest among masses of far-flung areas because of the higher POL prices than the port city and areas where the POL depots were available, a senior official of the Energy Ministry told The News.

To this effect, the federal minister for Petroleum Division has convened a meeting of the stakeholders and top officials on Thursday (today). The Oil and Gas Regulatory Authority (OGRA) would make a presentation on deregulation of petroleum products, its implications and the way forward on the matter.

The government’s only role at present is limited to announcing fortnightly fuel prices, calculated by OGRA, to pass on the impact of international market and exchange rate to consumers.

Legally speaking, the official said, petroleum prices had already been deregulated and the government notified only kerosene prices for the retail stage.

In case of other products like petrol, HSD and light diesel oil (LDO), the government only notifies tax rates like petroleum development levy, customs duty and sales tax, etc., and fix profit margins for dealers and marketing companies. OGRA and the Ministry of Finance adjust the IFEM (Internal Freight Equalisation Margin), which currently ensures uniform pricing across Pakistan. Therefore, the Ministry of Finance normally announces ex-depot prices without notification, while petrol stations set their own retail prices. On the other hand, the oil industry sets its own rates for furnace oil and the high-octane blending component (HOBC) based on tax rates notified by the government.

Now, the government is likely to completely deregulate the prices of petrol and diesel, including commissions of the oil marketing companies (OMCs) and dealers on the pattern of HOBC. In the new framework, OGRA and the Competition Commission of Pakistan would have a greater role, notwithstanding their limited capacity and outreach, to ensure product quality, availability and competitive environment to avoid market collusion and cartelisation.

This would also mean that the IFEM mechanism would also be deregulated. As such, prices would significantly vary from one city to another and from one oil company to another.