ISLAMABAD, Aug 18: The government may allow oil marketing companies to fix diesel prices independently with effect from Sept 1, to completely deregulate the diesel business.

Official sources told Dawn that all the firms would be empowered to fix their own diesel prices separately, unlike the current practice of uniform prices set by the Oil Companies Advisory Committee (OCAC).

After the deregulation, diesel oil prices would vary from company to company and outlet to outlet. The officials claimed that the new measure would introduce a healthy competition among various oil firms in terms of quality and prices. Simultaneously, the companies would be required to introduce 0.5 per cent of sulphur content in the high speed diesel (HSD).

At present, all the companies have a uniform pricing mechanism for up to 29 main depots, and prices vary between 10 to 35 paisa per litre at the outlet level. But from now on, every company would have its own price for even depots.

The oil firms advisory body was also pushing the government to cut the number of depots from 29 to 10 in the same go. It had also proposed a working plan to that effect, an official said on the condition of anonymity.

The government had agreed in principle, but was still analysing security aspects of the new arrangement, he added.

The Ministry of Petroleum and Natural Resources had asked the oil industry to put on hold reduction in the number of main depots in view of tense border situation at that time and requested for the working plan, the official said.

The advisory committee will continue to control the prices of other POL products for the time being. The import and price fixation of furnace oil has already been deregulated since last year.

The committee is currently fixing prices of motor gasoline, diesel, kerosene, high octane blending component (HOBC) and jet petrol on fortnightly basis. The import of diesel already stands deregulated.

Prices are fixed by the advisory body on the basis of the average cost of imports in the previous fortnight (through a price pooling system).

The World Bank had asked the government to discontinue the existing price pattern at the earliest and all players be encouraged to compete through the institution of a price cap mechanism both at the level of import and retail.

Currently, PSO imports 61 per cent of diesel as per contract with the Kuwait Petroleum Company while Shell and Caltex mainly buy the rest through open tenders. PSO has already lost its diesel market share from 74 per cent in 1995 to 61 per cent in 2000.