So the Competition Commission of Pakistan (CCP) thinks discriminatory practices in allowing access to Inland Freight Equalization Margin (IFEM) is indeed not healthy. Yes, discrimination is never good. But, is the IFEM in itself any good?
The CCP in its opinion on the IFEM saga has opined that the concerned refinery be given the benefit of IFEM in terms of transportation of crude oil and operational cost and also be given the status of supply source. The opinion that being denied the supply source status hurts the refinerys business is indeed a valid one. This is because the OMCs in turn are reluctant to transport oil from the concerned refinery.
That said, the Ministry has a sound argument too-enough to contest it on the basis that the second unit of the concerned refinery has not yet started production. Mind you, CCPs observation is just an opinion and does not bind the regulator to follow suit. A solution in this regard should be sought sooner than later, so that efficiency returns to the supply side market.
But the bigger question that arises is on the status of IFEM itself. Time and again experts have emphasized on the need to completely deregulate the upstream and downstream oil and refinery business. Some steps have been taken towards deregulation, but baby ones, which did not and cannot yield the desired results. The policy of having uniform petrol prices all across the country is not a sustainable one and it costs the exchequer billions in terms of IFEM, through manipulation and misuse.
The refineries access to the freight pool is discriminatory too for the OMCs, say the least, and they rightly feel aggrieved. For efficient pricing and smooth supplies, removing these distortions is a must. Those at the helm know how it can be done, it is the matter of showing the will do actually do it.
"Prices should be deregulated and in each city it should be based on ex-refinery prices plus freight to eliminate abuse of IFEM which leads to huge loss of revenue to the government," read a recommendation by the Energy Expert Group in its Integrated Energy Plan, long time ago. So, while the CCP may well be within its right in opining removal of distortions and allowing level-playing field, it is up to the Ministry to up its game on the policy front and move towards complete deregulation.