Petroleum products prices: Refineries, OMCs not to charge more than benchmark rate

[Lahore_Real_Estate]

ISLAMABAD (October 25, 2010) : The government has disallowed the oil refineries and Oil Marketing Companies (OMCs) to charge prices for petroleum products over and above the 'bench mark price' ie imported price, official sources told Business Recorder. "Refineries and OMCs will determine the price on monthly basis, whereas Ogra will monitor it.

Imported price will be benchmark for prices, and refineries as well as OMCs will not be allowed to charge over set "benchmark price" to protect consumers' interests," sources said.

Giving the background, they said that the Economic Co-ordination Committee (ECC) of the Cabinet in its meeting on July 29, 2010 had constituted a committee, under the chairmanship of Deputy Chairman of Planning Commission (DCPC) with representative each from Ministry of Petroleum, Oil and Gas Regulatory Authority (Ogra) to determine and establish impact of deregulation and frame modalities for deregulation.

Pursuant to ECC decision, a meeting of the committee discussed the issues and, due to some variation in numbers, DCPC directed Ogra and Pakistan State Oil (PSO) to jointly work out accurate impact of deregulation on consumer prices. According to the views expressed by Ogra and PSO, location-wise impact of deregulation of prices of petroleum products was in the range of Rs 1.50 to Rs 3.30 per litre on motor spirit (MS)/petrol and Rs 1.31 to Rs 3.50 per litre on high speed diesel (HSD).

It was proposed that refineries and OMCs may be allowed to fix and announce on monthly basis the ex-refinery and ex-depot sale prices for motor spirit (MS), HOBC, light diesel oil (LDO) and aviation fuels (JP-1) & JP-4/8) on their own, on competitive basis, subject to the conditions that: (i) ex-refinery price of the petroleum products would not be more than the PSO average actual import price(s) of the previous month excluding incidentals/wharfage.

Incidentals and wharfage for calculation of HSD ex-refinery price will also not be applicable (ii) for imported petroleum products, only actual incidental/wharfage incurred, if any, may be included in the calculation of import price; and (iii) in case of non-availability of PSO import price(s), the refineries will fix their ex-refinery price as per existing Import Parity Pricing formula parameters, excluding incidentals/wharfage.

The committee also decided that after deregulation of petroleum products prices, there would be no restriction on the number of storage depots, and OMCs will maintain the depots according to their commercial needs.

The OMCs and dealers' margins on HSD already fixed in absolute terms as Rs 1.35 & Rs 1.50 per litre respectively will continue as per existing practice. The margins for other petroleum products were proposed to be fixed in absolute terms (Rs/litre) assuming crude price at $62.50/bbl based on June 2010 prices proportionately as OMCs margin for MS Rs 1.50/litre, HOBC Rs 1.72/litre, kerosene Rs 1.58/litre & LDO Rs 1.61/litre and dealers' margin MS Rs 1.87/litre & HOBC Rs 2.15/litre.

The committee recommended that Ogra would submit quarterly report on pricing of petroleum products indicating the trend in international market and petroleum product prices announced by OMCs/refineries along with their analysis/findings and suggestions, if any, on regular basis to ECC. All OMCs/refineries will have to submit detailed information to Ogra in this regard.

The committee also proposed that necessary amendments/provisions in Ogra Ordinance to empower Ogra for performing the above function of monitoring the pricing of petroleum products under the deregulated scenario will be made. In the meantime, Ogra may be authorised to perform the above monitoring functions till the process of amendments in the Ordinance is completed.

When the issue came under consideration in the meeting on October 15, 2010 the ECC noted that Ogra Ordinance 2002 in its present form does not allow it to monitor prices of de-regulated petroleum products as it only acts as a regulator. Suitable amendments, therefore, need to be made in the Ordinance to assign Ogra the function of monitoring of deregulated petroleum product prices.

On a query, the ECC was informed that with the introduction of new petroleum products pricing formula, Inland Freight Equalisation Margin (IFEM) will fall in controlled deregulation because the Ogra will notify it from one destination to other destination but so far as prices of petroleum products are concerned, refineries and OMCs will determine the price on monthly basis whereas Ogra will monitor it. Imported price will be benchmark for prices and refineries as well as OMCs will not be allowed to charge over set "benchmark price" to protect consumers' interests.

After detailed discussion, the ECC approved revised petroleum products pricing formula 'deregulation of petroleum products prices by doing away with common freight pool' and directed the Ministry of Petroleum to place the matter before the Cabinet for ratification, subject to amendment in Ogra Ordinance 2002 prior to the implementation of the decision.

The decision will be notified by Ministry of Petroleum and Natural Resources at an appropriate time for implementation by Ogra.