While apparently succumbing to the refineries' pressure, the government has rejected the World Bank's proposed formula based on open market mechanism for oil pricing. This has been followed by another decision by the government authorities that there was no need to replace existing oil pricing formula as it suits best to meet Pakistan's requirements.
Sources said the World Bank had presented the new oil pricing formula to the officials of the ministry of Petroleum last year, suggesting the government to replace with an open market based pricing of petroleum products.
The World Bank claimed that its formula would suit to Pakistan to put an end to what it said 'Anti-consumer mechanism'. It added that exiting oil-pricing system was meant to give undue favour to the refineries. The bank, in particular, criticised protection given to the refineries under exiting formula in the form of minimum 10 percent profit/ margin guarantee on their operations.
The government bought the World Bank's idea immediately and started work on it to replace existing formula with some other one. It also worked on different formulae being practised in various countries probably with an intention to have better choice.
The officials of the ministry of Petroleum held series of meetings at different levels and later gave a detailed presentation to prime minister, Shaukat Aziz, in May last. The presentation to the prime minister covered different options including one proposed by the World Bank and their possible effects on the local market.
However, suddenly the concerned authorities decided to put on hold the idea of replacing the existing formula with some new one. There may be some other reasons of abrupt stopping of work on the idea, but apparent reason is stiff resistance from the refineries. It is well-established fact that refineries had strongly opposed the World Bank's proposed formula and demanded of the government to carry on the existing one to maintain status quo on oil pricing.
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