ISLAMABAD: The Federal Government has decided to deregulate pricing of light diesel oil and kerosene oil in consultation with relevant stakeholders, well informed sources in Ministry of Energy told Business Recorder. In this regard, the Economic Coordination Committee (ECC) of the Cabinet, in its special meeting held on July 31, 2022, with Finance Minister, in the chair, directed Petroleum Division to submit a summary within a week.
Sharing the details, sources said ECC while considering its summary of July 21, 2020 approved the parameters to determine ex-refinery/import prices of Mogas (Petrol) and HSD (Diesel), whereby the base price was fixed on the basis of 15-day average FoB prices of the Arab Gulf market (published in the Platts Oilgram). The fortnightly prices were determined in terms of US dollars and converted into Rs/litre by applying last available provisional exchange rate for computation of the per litre exchange rate variation actualized at the time of revision in next prices based on the actual exchange rate being applied on the retirement of PSO’s LCs.
The ECC was informed that the mechanism remained effective as long the depreciation of rupee remained smooth. The previous fortnight, had+ADs- however, seen a very sharp decline in the exchange rate. The rate used in the previous fortnightly price determination was Rs 209.7251/+ACQ-. The exchange rate used by OGRA for the prices for the first fortnight of August, 2022 was Rs.236.0394/+ACQ-.
Petroleum Division stated that in order to consider the implication of the depreciation of the PKR, a meeting was held in the Petroleum Division under the chairmanship of Shahid Khaqan Abbasi, attended by Finance Minister, Advisor to the Prime Minister on Establishment, Chairman OGRA, Secretary Petroleum Division and MD PSO. It was suggested that the average inter-bank rate of the previous pricing period, rather than the rate of the last day should be taken for the purpose of price calculation.
This, it was determined, would smooth the impact of rupee depreciation on the petroleum product prices. It was noted in the meeting that the actualization was included in the next pricing period on the basis of actual rate used for retirement of PSO LCs and therefore, there was no impact in the revenue of OMCs and refineries.
Petroleum Division stated that the matter was also discussed with the representatives of OMCs and refineries for ascertaining their point of view. During the meeting, all OMCs and refineries opposed the idea of making any change during the price review immediately and requested for time to come back with their new proposals for bringing improvement in the pricing mechanism.
Petroleum Division informed the forum that the matter was settled on the agreement that a more detailed consultation would be held on August 2, 2022 (today) to discuss the following: (i) OMCs margins+ADs- (ii) shortening the period of price review+ADs- (iii) making the actualization/ truing process more transparent.
Petroleum Division recommended the forum to issue guidelines to OGRA to use the average of exchange rate for the relevant period rather than the exchange rate of the last day for the current as well as all future price determinations. It was pointed out that as a result of this change, the price increase for the next fortnight would be abnormally high if the oil prices and exchange rate remain at the same level.
The ECC approved the proposal to discuss the issue in more detail on August 2,2022 with the stipulation that: (i) increase in dealer margins for MS (Petrol) to be effective from August 1, 2022 and for diesel from August 16, 2022+ADs- (ii) Petroleum Division to submit a summary to deregulate the pricing of kerosene oil and light diesel oil within a week in consultation with relevant stakeholders+ADs- and (iii) Petroleum Division to submit a summary for further improving the pricing mechanism including other ways for setting petroleum product prices in consultation with OGRA within a week.
Copyright Business Recorder, 2022