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Published 10 Jan, 2009 12:00am

New oil policy envisages fiscal incentives for exploration

ISLAMABAD, Jan 9: The new petroleum policy approved by the Economic Coordination Committee (ECC) of the cabinet on Friday envisages an increase in tax exemptions and fiscal incentives to spur oil and gas exploration and a reduction in bureaucratic hurdles in the award of contracts for exploration.

During the ECC meeting, it was also decided to increase dealers and marketing companies’ profit margins on the sale of petroleum products and also to revise oil prices on a monthly basis instead of fortnightly review.

Under the Petroleum Exploration Policy, consumers will have to pay up to 38 cents per million British Thermal Units (BTUs), amounting to 10 per cent price increase, for new gas discoveries in different zones.

In zone-I, the gas price has been raised to $5.03 a unit from $4.65, while in zone-IV from $4.10 to $4.38.

Presided over by Adviser to the Prime Minister on Finance and Revenue Shaukat Tarin, the ECC increased the profit margins of dealers on the sale of all petroleum products, except diesel, from four to five per cent. It also enabled oil marketing companies (OMCs) to earn a four per cent profit instead of the previous 3.5 per cent.

On diesel, the dealers’ margin has been increased to Rs1.50 a litre from Rs1.14. OMCs, however, will now earn Rs1.35 per litre of diesel, increased from Rs1.3 a litre.

“The government is ethically bound to raise the margins of OMCs and dealers after the decline in international crude oil prices,” the additional secretary of the ministry of petroleum, G.A. Sabri, said at a press conference after the ECC meeting.

The government has pocketed over Rs50 billion through the imposition of Petroleum Development Levy (PDL) and sales tax on petroleum products over the past six weeks and there are no signs that the government will reduce prices in the near future despite a sharp fall in international oil prices.

When the secretary was asked why the government was not passing on the benefit of decline in world prices, Mr Sabri said the government owed the OMCs Rs12 billion in price differential claims when it had asked the companies to sell oil at lower than market prices, and it had to pay them back to recover the subsidies paid to domestic consumers.

When asked whether there was any limit to PDL as it constituted more than 50 per cent of petrol and HOBC prices, Mr Sabri said: “There is no law under which PDL is levied. PDL itself is a law. And, law has no limits.”

OIL PRICE: Mr Sabri said next price revision would take place by the end of this month, because from now on petroleum prices will not be reviewed fortnightly but on a monthly basis from Jan 16..

Mr Sabri said various stakeholders, including transporters, were not ready to reduce fares to match the decline in domestic prices of petrol and diesel. He also said diesel and petrol prices could not be decreased further to save the compressed natural gas (CNG) industry.

The ECC also set aside a proposal to empower the Oil and Gas Regulatory Authority (Ogra) to monitor the furnace oil price, which is so far unregulated. The committee turned down the proposal because it amounted to controlling the prices of furnace oil, a task that did not come under the purview of the government.

The ECC also rejected a proposal under which there should be a two-tier prices of Liquefied Petroleum Gas (LPG) on domestically-produced and imported LPG.

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