May 13, 2002	Monday	Safar 29, 1423

The statement of Oil Companies Advisory Committee (OCAC) on April 30, the day of presidential referendum, carrying “no change” in prices of main oil products, came out with no surprise as markets analysts had already foreseen a possible price cap in domestic oil prices.

The freezing of oil prices on April 30 was the third in a row in the last one month by the government of Pervaiz Musharraf in order to gain masses support ahead of referendum process.

And now the referendum is over — what has been left for the consumers to think about the next price review of the OCAC on May 15. This situation agitates the mind of oil analysts as well as the consumers as to what will happen next.

Price hike now seems inevitable following 6 to 12 per cent rise in international oil prices in the last one and a half months. Analysts say the next price review of OCAC on May 15 may really prove tough on consumers as the rising oil prices followed by increase in OMCs margin will definitely be passed on to the end users.

Besides freezing oil prices, the government had already put on hold all measures and steps that spark anger among consumers in view of referendum process.

In the last one month, the domestic oil prices should have gone up by at least 6 to 12 per cent in view of global oil prices and upward revision in OMCs margin, but it could not be passed on to the consumers, thus pushing up eyebrows of whether the industry is really passing through the process of deregulation.

The exchange rate — the rupee-dollar parity remained somewhat stable during the fortnight otherwise rupee depreciation against the greenback would have made imports costlier.

Confusion still prevails whether consumers will get a straight jerk of increase in oil prices in next oil price review or the OCAC will stagger it by passing the impact of OMCs margin hike and raise in global oil prices to the consumers in phases.

The OCAC, the OMCs and even the petroleum ministry in the last month have not come with any statements as to why the prices of petrol, diesel, kerosene and HOBC had been kept unchanged despite increase in global oil prices.

Diesel price had not been increased in the last four fortnightly price reviews. It should have been surged on March 15 review by about 3.2 per cent followed by another three to five per cent each on March 31 and April 15 reviews in view of rising international prices.

Keeping the prices unchanged since the last one month must have made a negative impact on government’s revenue earning. The current fiscal year is also concluding and the government needs more money to meet its revenue targets in order to present a positive outlook before an IMF mission, arriving this month.

Analysts said that the fixed petroleum development levy charge had been adjusted downward in price reviews to absorb the effect of higher ex-refinery prices while keeping the final sales price unchanged and OMCs margins had also been kept constant.

As no official breakup of the new oil prices had been announced, it seemed that the full one per cent increase in oil companies’ commission was not yet incorporated.

On oil margin increase, an analyst said that a one per cent increase in OMCs’ margin enhances their profitability by 40-50 per cent. In the year 2002-2003, the cumulative impact of margin revision on earnings of two main OMCs will be over 50 per cent.

Surge in crude oil prices in world market means some pressure on the all time forex reserves of $5.2 billion (import cover of 27 weeks).

There may see some pressure on the Pakistani rupee coupled with slight increase in interest rates in the country if oil at $26-27 per barrel and other commodity prices currently prevailing in the world market persists.

Assuming that the current oil prices sustain between $25-27 a barrel, Pakistan will post an additional outflow of $200-300 million on account of additional oil payments. According to an estimate, the import bill may cross $2.5 billion in 2001-2002 if the current situation prevails as against $2.3 billion envisaged earlier this year.