It was only a matter of time before the government let the oil marketing companies (OMCs) and petroleum dealers increase their margins, in line with the industrys long standing demands. The Economic Coordination Committee (ECC) in its recent meeting allowed increases of 32 and 28 percent respectively in OMC margins on petrol and diesel, while the dealer margins for the two products have been raised by 30 and 47 percent respectively. Although, the governments intention is to bring about an increase in petrol and diesel prices in a phased manner (in 3-4 months), it might as well happen as soon as next month. The recent slump in global crude oil prices has provided ample cushion to the government to make the move now, while petroleum prices are expected to be reduced considerably, next month. Moreover, the magnitude of the increase in the end price would not be higher than Rs1-1.25/ltr, which would make it easy for the government to pass the buck forward without much political and media scrutiny. As for the justification of allowing higher margins, 35 percent increase in CPI inflation ever since the margins were fixed in absolute terms (February 2009) and 10 percent rupee depreciation against the greenback; are reasons enough for the margins to be revised upwards. In any case, the OMC and dealer margins are considerably lower than the four and five percent margins which prevailed for most part of the previous decade. As regards the impact of margins revision on the OMCs - the analyst community seems to have factored-in the development beforehand. Pakistan State Oil naturally stands out to be the major beneficiary courtesy of its market leadership status, closely followed by Shell and Attock Petroleum. The ECC also approved reopening of four oil depots of the state owned PSO under the IFEM mechanism. The primary aim is to provide buffer to the storage capacities and to avert crisis-like situation that occurred earlier this year when the country faced an acute petroleum shortage. However, what was absent from the all important meeting was the fate of IFEM, the elimination of which was tipped as the initial phase of complete deregulation, by the Petroleum Minster, back in June 2011. It was then that the Minister ruled out revision of petroleum margins before the phasing out of IFEM - but it seems that the realities are too harsh to ignore. And the reality is that the government will have to face stiff opposition from the political parties and the media on such a decision. Doing away with the IFEM may not be easy for the government at this stage as it will create pricing variations in various parts of the country. The margins revision is no doubt a welcome step; but complete deregulation will remain a distant dream unless political will to take tough decisions is present.
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