The federal government has decided to link ex-refinery price of JP-8 with ex-refinery price of JP-1 with effect from next fiscal year based on Import Parity Price (IPP), sources close to Secretary Petroleum told Business Recorder. The prices of petroleum products were determined by refineries and Oil Marketing Companies (OMCs) under the parameters approved by the ECC on October 15, 2010 and August 16, 2011, whereby ex-refinery prices were linked with the PSO's actual import price, while in the absence of PSO's import, the prices were determined as per the ECC's approved IPP formula based on the international oil market prices quoted in Arab Gulf Market.
The ex-refinery pricing formula of a petroleum product named "Jet Propellant-8" (JP-8) was now to be finalized with the approval of ECC. JP-8 was a jet fuel, widely used by some developed countries of the world for security/defence purposes. Pakistan Air Force and Defence Forces switched over from JP-4 to JP-8 in 2005. Resultantly, refineries had commenced JP-8 production on the special demand of Defense Forces, for which they were tentatively allowed exrefinery price equal to a lower grade product, ie, Super Kerosene Oil (SKO) till a separate pricing formula for JP-8 was approved.
The sources said, since JP-8 was produced by up-grading SKO through adding certain special additives, ie, corrosion inhibitor and dissipater, therefore, refineries have requested to permit them realistic ex-refinery price as existing pricing mechanism for JP-8 which was based on the ex-refinery price of SKO, was tentatively allowed subject to revision, and has now become uneconomical.
Besides, JP-8 production required special arrangement of storage and testing as per specific need of the defence forces and now its demand has increased manifold due to security/defense reasons. Therefore, current pricing mechanism is commercially unviable for refineries to maximize JP-8 production. Refineries have suggested that instead of SKO, the ex-refinery price for JP-8 should be linked with the existing ex-refinery price of JP-1 (a similar jet fuel oil being used for normal commercial aircraft requirements) under the IPP formula. The existing ex-refinery price applicable for SKO and JP-1, approved by ECC was as follows : (i) SKO = based on the SKO's FOB average price published by Hails Oil Gram for Arab Gulf market (at present same SKO formula applies for JP-8) and ;(ii) JP-1 = based on the SKO's FOB average price published by Platts Oil Gram for Arab Gulf market plus 1Cent per US gallon (same JP-1 formula is now proposed for JP-8).
According to the Petroleum Division as per IPP formula, the SKO ex-refinery price comes to Rs 39.26/liter, being applicable to JP-8 while as per formula for JP-1, its ex-refinery price works out as Rs 39.53/liter, being proposed for JP-8. The price has been calculated based on the last year (2016-17) FOB average price. After linking the JP-8 price with JP-1, the JP-8 ex-refinery price would rise by Rs0.28/liter.
The sources said the impact would vary depending on price trend in international market. The above mentioned illustrated figures have been revised based on the prices published in international market for Arab Gulf as advised by OGRA.
The Petroleum Division, source said had proposed that the ex-refinery price of JP-8 may be linked with the ex-refinery price of JP-1 with effect from 1st July 2018 based on IPP, in addition to existing taxes and cost/margins applicable on JP-1 to arrive at ex-depot sale price which was approved by the government.
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