ISLAMABAD: In an unusual public rebuke, the Oil and Gas Regulatory Authority (Ogra) has advised against speculation on petroleum prices, which could “disrupt” the smooth supply chain.

In a public statement on Monday, the petroleum regulator emphasised “the importance of avoiding speculations regarding the prices of petroleum products”.

Even though the statement excluded any explicit reference, the caution was apparently in response to the statements by two caretaker federal ministers, who had hinted at a reduction in prices in the next fortnightly review, due on Sept 30.

Their optimism was based on the improved value of the rupee, which has gone up by Rs16.24 against the dollar since hitting a record low of 307.1 in the inter-bank market on Sept 5.

Regulator’s ‘unusual’ warning comes on heels of optimistic statements by two members of caretaker cabinet

On Monday, Ogra pointed out that the prices are determined on the basis of international market prices and the exchange rate.

While the exchange rate “has shown improvement”, there is still one week remaining before the announcement of new prices.

It also added that there has been a surge in international prices recently, implying that it could offset the anticipated relief.

“Therefore, any speculation about price increases or decreases during this period is highly speculative and could potentially disrupt the smooth functioning of the oil supply chain.”

Price reduction ‘not guaranteed’

An official involved in the pricing process said the international prices are going up while the exchange rate is slowly coming down, but there are also some outstanding adjustments that may need to be allowed to oil marketing companies (OMC).

“Price movement could go either way over the remaining five days.”

Similar views were expressed by the caretaker petroleum minister, Muhammad Ali, who said at a news conference that it was very premature to predict prices as the rupee had strengthened while international prices had appreciated.

In the past, the regulator routinely urged journalists not to speculate on petroleum prices even when it formally sent working papers to the government a day before the announcement of new prices.

However, this time, the federal cabinet ministers started the speculations a week after the government increased the prices by Rs26 per litre. The massive surge came on the back of cash flow constraints, dwindling foreign exchange and high financing costs.

Between August 15 and September 15, petrol and high-speed diesel (HSD) prices have increased by Rs58.43 and Rs55.83 per litre, respectively.

Interestingly, the hints at price reductions were made by caretaker Commerce Minister Gohar Ejaz and caretaker Information Minister Murtaza Solangi, both of whom have no role in determining the prices.

Regulator’s role

While the regulator, Ogra, is independent under the law, its role in pricing is also very limited, so much so to the extent of being ‘an accountant’.

It merely calculates the landing cost — provided by Pakistan State Oil — of products along with the exchange rate, adds taxes and commissions for dealers and OMCs, and presents a working paper to the Ministry of Finance.

The ultimate decision is made by the Ministry of Finance after the prime minister’s nod.

At present, the general sales tax is zero on all petroleum products, but the government is charging Rs60 and Rs50 per litre petroleum development levy on petrol and HSD, respectively. The prices also include about Rs18 to Rs22 per litre customs duty.

Published in Dawn, September 26th, 2023