Govt mulls plan to deregulate petroleum prices

Fixes margins for oil marketing companies at Rs6


With the fuel prices becoming a bone of contention for the federal government, it is mulling a plan to deregulate the price of petroleum products from later this year.

The government has also decided to fix the margins of oil marketing companies at 64% higher rates when compared to their previous rates.

This was stated in a summary sent to Prime Minister Shehbaz Sharif on Friday by the Petroleum Divison under the Federal Energy Ministry.

The summary stated that the Petroleum Division had moved a summary before the Economic Coordination Committee (ECC) on July 28 to raise the margins of the Oil Marketing Companies (OMCs).

The margins are the primary source of income for these companies.

The companies had argued before the government that after the recen increase in turnover tax, high interest rates, increased line of credit (LC) charges, demurrage and increased costs on account of inflation, have impacted their profitability significantly apart from a substantial hike in capital requirements.

They proposed raising the margin to Rs8.85 per liter.

The government however, provisionally agreed to a lower rate.

The rates were then reviewed in a meeting of the ECC on August 2.

The ECC however, decided to propose that petroleum prices should be deregulated - i.e. should be determined by the market - from November 1, 2022 onwards.

Meanwhile, the Oil and Gas Regulatory Authority (OGRA) was directed to conduct an analysis of the implications such a move may have on petroleum prices and to consult all stakeholders. A particular reference was made to reivew the impact on in-country freight equalization protection of dealer’s margins and collection of sales tax on dealer’s margins.

OGRA was directed to submit its recommendations by September 15.

In the interim, the government and OMCs agreed to fix their margins at Rs6 per liter. By comparison, the OMCs were enjoying a margin of Rs3.68 per liter. The Petroleum Division said that this would amount to a 63.04% increase in the existing margins of the OMCs.

The new margin will be equally applicable on petrol and diesel (high speed diesel) and is expected to reflect in the prices of fuel when they are changed on August 15.

The summary proposed that OGRA, being the regulator, will monitor that the margins have been accounted for in the price of the fuel at the depot.

These proposals will be subject to the review and approval of the ECC and the federal cabinet.

petrol prices

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