OCAC demands diesel price revision

ISLAMABAD: The recent cut in the prices of petroleum may have earned the government some political mileage but has left the oil industry howling in grief for causing over Rs11 billion inventory losses in a fortnight due to “manipulation of (diesel) pricing”.

The government had announced on July 15 a Rs9 and Rs7 per litre cut in the prices of petrol and high-speed diesel (HSD), respectively, for the current fortnight ending July 31.

In a protest letter to the Ministry of Petroleum and Oil & Gas Regulatory Authority (Ogra), the Oil Companies Advisory Council (OCAC) – an association of over three dozen oil marketing companies and refineries – has alleged “forced reduction in high-speed diesel (HSD) price at the cost of [oil] industry”.

It said the price of HSD for the second fortnight of July had been reduced by Rs7 despite the fact that the price was increasing based on a formula approved by the Economic Coordination Committee (ECC) of the Cabinet on July 28, 2020. “Instead of passing on the increase or absorbing the impact of this increase by reducing petroleum levy, the price was unilaterally and unjustly reduced by applying inaccurate premium”, it alleged.

Says oil industry forced to take Rs11bn hit for political gain

Under the approved pricing mechanism, in case of no import by Pakistan State Oil (PSO) during a particular fortnight, premium and other incidentals for the previous fortnight have to be applied. In normal pricing, PSO’s premiums and other incidentals are taken as benchmarks for all companies and refineries.

OCAC said the government had implemented the above policy to ensure that the oil industry gets an accurate recovery for inventory which has been acquired on the rates prevailing in the previous fortnight. “Since PSO did not import any HSD during the first fortnight of July 2023, the previous premium of $11.5 per barrel should have been used in price computation for the second fortnight”, it said, but protested that “Ogra used a premium of $4.2 per barrel; this arbitrary revision is against the essence of the above mentioned ECC decision”

Moreover, the OCAC also said that apart from the premium, other incidentals included in the HSD price were from the previous period i.e. second fortnight of June 2023 which “clearly shows that the premium applied is anomalous”.

It pointed out that as a result the oil marketing companies and refineries suffered a premium shortfall at the rate of $7.3 per barrel as the actual rate for the previous fortnight should have been $11.5 per barrel against $4.2 per barrel which the PSO had now secured but has not been able to import a single molecule of diesel and may not be in that position before August.

With the exchange rate used at Rs278.5 against the dollar, the shortfall in local currency has been worked out by the oil industry at Rs2,033 per barrel, translating into Rs12.79 per litre. “Based on stock levels at the end of the previous fortnight and expected local production, this manipulation in pricing has generated an inventory loss for the industry to be tune of about Rs11bn which is not sustainable and will severely impact the already crippled oil industry”, the OCAC warned.

It reminded the government that the oil industry was also facing a severe financial crunch due to insufficient margins, increased markup, high global prices, rupee depreciation, etc and would not be able to manage uninterrupted fuel supplies “if this manipulation in pricing is not rectified through immediate price revision”.

The OCAC called upon the government and the regulator to take urgent action to avoid any supply chain challenges.

Published in Dawn, July 18th, 2023