Prices of petroleum products: Govt wants bigger hike than suggested by Ogra
ISLAMABAD: The Oil and Gas Regulatory Authority (Ogra) has worked out an average of four per cent increase in the prices of all petroleum products with effect from Thursday midnight, but the government wants the last price surge of its tenure to be even higher.
“The pricing of petroleum products is turning out to be a major controversy at the fag end of the PPP government’s tenure,” said a senior government official.
Background interviews with officials of the ministry of petroleum and regulatory authority suggest that while Ogra had worked out a hike in prices of all petroleum products under the existing pricing formula, it has recommended to the government not to pass on the increase to consumers.
An official told Dawn that a working paper prepared by Ogra for consideration of the government has calculated an increase of Rs3.53 in the price of petrol to Rs106.60 per litre from Rs103.07. Ogra has estimated an increase of Rs4.35 on high-speed diesel (HSD) to Rs113.56 per litre from Rs109.21. It has proposed to increase the prices of kerosene by Rs3.79 to Rs103.69 per litre from Rs99.90 and light diesel oil (LDO) by Rs3.93 to Rs98.25 per litre from Rs94.33.
The ministry of petroleum, however, wants Ogra to also take into account decisions of the Economic Coordination Committee and pass on a higher price increase to consumers than originally worked out by the regulator.
Ogra is resisting inclusion in the price calculation of the increase in dealers’ commission and oil marketing companies’ margin and transportation cost impact of Byco’s refining approved by the ECC on sale of petroleum products in retail market. If Ogra gives in to the ministry’s demand, the prices of major products — petrol and HSD — would go up by Rs1 per litre over and above the rates worked out by Ogra.
What made the issue more contentious was the fact that a statement issued after the ECC meeting reported that “the ECC approved the margin for oil marketing companies and dealers to be increased by 10 paisa per litre on high-speed diesel”.
Officials at both the ministry and Ogra, however, presented a different picture. They said the much higher commissions and margins were also increased on petrol on the recommendation of the petroleum ministry, but were not reported in official statement. They also said even though the ministry had not sought a rise in dealers’ commission on diesel, it was increased by 10 paisa per litre on the request of Information Minister Qamar Zaman Kaira.
They said the ECC approved an increase of 25 paisa per litre in OMC margin on petrol and 41 paisa in dealers’ commission. The ECC also approved 10 paisa per litre increase in commission for both dealers and OMCs.
An official said in a series of meetings on Wednesday Ogra had taken a position that it could not include the impact of increase in dealers and OMCs’ margin until it received a written directive from the government or at least the minutes of the ECC that increased margins for petroleum dealers and marketing companies.
The ministry of petroleum contended that since the ECC had taken a decision on Feb 26, it should be implemented immediately by Ogra whether or not it received minutes of the meeting that may take a couple of days to come out. “There is a possibility that we are able to persuade the cabinet division to circulate ECC minutes on Thursday so that increased margins are adjusted accordingly before the price notification,” said a government official.
An official said the issue of including the impact of inland freight equalisation margin (IFEM) in product prices approved by the ECC for Byco refinery was very serious.
He said a 15 paisa per litre impact of IFEM for transporting crude from Karachi to Multan was justified and would be subject to a policy directive by the ministry, but similar treatment to Byco would become a serious controversy and it might be challenged in court.
He said Parco was set up under the 1994 policy and implementation agreement of 1995 with 60 per cent equity participation by the government of Pakistan.
The policy and implementation agreement was based on a feasibility study to make transportation of crude from Karachi to Multan and reverse transportation of refined products to Karachi and involved government guarantees to ensure uniform petroleum prices.
No such facility was available in the case of Byco, which was a 100 per cent private entity and set up without any techno-economic feasibility and without any commitment from the government. On top of that, Byco was based at Hub, which was very close to Karachi, and its products would get marketed in Karachi and its close proximity.
“There is no justification to treat the two refineries at par. One is located more than 850km from Karachi while the other close to Karachi. They cannot get equal treatment in price calculation,” a senior official said.