MoP mulling over absorbing impact: oil price hike decision in February

The Ministry of Petroleum is mulling over absorption of the rising impact of petrol price by Rs 9.4 per litre and diesel Rs 8.2 per litre by implementing the decision of the Economic Co-ordination Committee (ECC) to deregulate Inland Freight Equalisation Margin (IFEM) along with placing a cut on Petroleum Levy (PL) to keep the new oil prices unchanged effective February 1, 2011, Business Recorder has reliably learnt.
The Ministry of Petroleum will present these options in a meeting of the Parliamentary Committee on Oil Pricing scheduled for Monday. The other option available with the Ministry of Petroleum is to reduce the rate of deemed duty on high speed diesel (HSD). Oil refineries are charging 7.5 percent deemed duty on HSD, which the Petroleum Ministry wants to end after resolving the issue of circular debt.
Oil refineries had generated Rs 80 billion on account of ''deemed duty'' since 2002 to December 2009 to set up plants for upgrading petroleum products. But after generating such a huge amount, oil refineries failed in setting up these plants. The ECC in its meeting held in October 2010 had approved controlled deregulation of IFEM under which freight charges will vary from one destination to another. After implementation of deregulation, IFEM will become zero in Karachi whereas in Chitral, it will have rising impact that will be subsidised by Pakistan State Oil (PSO).
Sources say the government will face Rs 12.2 billion revenue loss on account of PL on petroleum products during three months ie December-February 2010-11.The government has lost Rs 1.2 billion revenue in December 2010, Rs 2.2 billion in January 2011 on account of PL collection. "There will be revenue loss of Rs 6.6 billion on account of PL on petroleum products in February 2011 if prices are kept unchanged," sources said.
The government is currently charging Rs 4.27 per litre PL on petrol, Rs 7.43 per litre on HOBC and Rs 2.55 per litre on kerosene oil. The PL on Light Diesel Oil (LDO) has been abolished after withdrawal of decision regarding hike in oil prices on January 7, 2011 after facing political pressure. The government is charging uniform rate of IFEM on different petroleum products, which are: petrol Rs 5.31 per litre, Rs 7.75 per litre HOBC, Rs 1.50 per litre kerosene oil and Rs 1.86 per litre IFEM on LDO.
In the deregulating mechanism, Ogra will notify actual cost of IFEM but OMCs will be free to compete with each other in notified freight cost in different parts of country. Ogra will be empowered to intervene only if any violation takes place by refineries in allocation of petroleum products to OMCs and in case of misuse of freight rates.