Government decides to deregulate oil prices

The government has decided to deregulate the prices of all petroleum products with an improved monitoring role for the Oil and Gas Regulatory Authority, abolish guaranteed inland freight equalisation margins (IFEM) to refineries and marketing companies effective from June 1.
Minister for Petroleum and Natural Resources Dr Asim Hussain told Business Recorder here on Tuesday that implementation of the formula would increase the price of high octane by Rs 22 per litre, while prices of other petroleum products will come down by Rs 5.78 per litre.
According to Ogra sources after the implementation of the formula, petrol price will drop by 18 paisas, high-speed diesel by Rs 5.15, light diesel by Rs 5.78 and Kerosene oil by Rs 5.83 per litre. Price of High Octane will increase from Rs 99.92 to Rs 121.92 per litre. Under the new formula, price of petrol would remain the same across the country.
The price differential would enable the government to earn an estimated profit of Rs 4 billion per annum. On the other side, average oil prices will come down by Rs 5.19 under the current mechanism. He said that the deregulation regime in the country would bring a uniform price mechanism of petroleum products. Pakistan's dependency on imported POL products would also decrease as production of local refineries will go up. This would empower Ogra to intervene in case of price manipulation by any company and ensure that all marketing companies get supplies from refineries in accordance with their market share.
Ogra as a regulatory body would on monthly basis submit international and local POL products prices report to the Economic co-ordination Committee of the Cabinet.
The government believes that removal of freight margin will lead to competition among marketing companies and refineries to use the cheapest mode of transportation and will also result in lower consumer prices. It would curb malpractices related to tax refunds, sale of fake products and dumping, Dr Asim said.
The government was directed by the Supreme Court of Pakistan's Judicial Commission in 2009 to deregulate prices of petroleum products in phased manner. The Rana Bhagwandas Commission had recommended that the IFEM be replaced by a primary charge in the ex-depot price and Parco's pricing be brought in line with other refineries.
Economic Co-ordination Committee of the Cabinet in its meeting held on July 1, 2010 and October 15, 2010 had approved proposals on deregulation of Inland Freight Equalisation Margin (IFEM) and prices of petrol, HOBC, LDO and aviation fuels (JPs) with the directives to the Ministry of Petroleum and Natural Resources to implement these recommendations at appropriate time.
However, due to political pressure IFEM was not deregulated by the government and refineries as well as Oil Marketing Companies (OMC) were allowed to fix and announce ex-refinery and ex-depot sale price of different POL products on their own on a competitive basis.