Oil industry shows concern over deviation from existing pricing formula for POL prices from Oct 16

ISLAMABAD: The oil industry has voiced serious concerns over the government’s deviation from the approved pricing formula for the computation of prices, effective October 16, 2024.

Industry stakeholders argue that this shift has caused significant financial losses to refineries and oil marketing companies (OMCs). They have urged the government to immediately revise petroleum products’ (POL) prices according to the existing pricing mechanism for.

In a letter dated October 16, 2024, addressed to the chairman of the Oil and Gas Regulatory Authority (Ogra), the Oil Companies Advisory Council (OCAC) highlighted the deviation. The letter states that, in an effort to manage prices, the government reduced the customs duty on high-speed diesel (HSD) from Rs15.18 to Rs13.26 per litre. This Rs1.92 per litre reduction is expected to lead to an estimated loss of Rs700 million during the second half of October.

Furthermore, the internal freight equalization margin (IFEM) was reduced by Rs3.04 and Rs4.07 per litre for HSD and Mogas, respectively. This reduction was achieved by incorporating an adjustment against the refinery regulatory duty, amounting to Rs3 billion for the current period. As a result, OMCs are now facing reduced recovery of approved freight costs.

The OCAC also pointed out that Ogra has historically highlighted the importance of evenly spreading out adjustments related to line-fill financing costs and pipeline losses across multiple pricing periods to prevent significant fluctuations in the IFEM. The council urged Ogra to adhere to this practice and ensure that all industry-related adjustments are spread evenly to avoid unnecessary financial exposure.

From the OCAC platform, the oil industry emphasised that manipulation of oil prices is unsustainable and will exacerbate the challenges the industry already faces. These challenges include smuggling, high financing costs, sales tax exemptions, high turnover taxes, insufficient margins and other operational pressures.

To safeguard the viability of the industry and prevent potential supply chain disruptions, the OCAC has called for an immediate revision of prices based on the government’s approved pricing formula.