18 April 2004	Sunday	27 Safar 1425

KARACHI, April 17: Petrol and diesel have become costlier by 8.5 and 13.6 per cent respectively in the last 14 months. Consumers have witnessed a total of 19 times increase in petrol prices as against the 10 times decline from January 2003 till April 16, 2004 in the total 31 fortnightly price reviews. Prices are reviewed 24 times in a year.

Similarly, oil marketing companies (OMCs) - Pakistan State Oil, Shell Pakistan Limited and Caltex Oil Pakistan Limited-have raised the price of high speed diesel (HSD) by at least 16 times as against reducing the rates by nine time from January 2003 till todate.

On January 1, 2003, petrol and diesel were selling at Rs32.50 and Rs21.14 per litre as compared to current rates of Rs35.27 and Rs24.02 per litre respectively.

Passengers travelling by public transport have to shoulder an additional burden of Re1 on an average for each trip.

Industrialists say that fortnightly increase in the POL products prices is rendering local industries uncompetitive in the international markets as it jacks up their input cost.

Increase in transportation cost is also the main factor in increasing the prices of vegetables and fruits since the share of transportation charges (from picking up the greens from producing areas to the city) ranges between 30-40 per cent of the actual retail price. Any increase in oil prices compels transporters to charge additional fares.

Since the Oil Companies Advisory Committee and OMCs, operating as a cartel under government patronage, have been given the green signal to evaluate fortnightly price reviews under deregulation process, consumers and even the business community have been clamouring over the non-transparent price reviewing mechanism.

Many politicians have raised the issue in the Senate and the National Assembly over the exploitative role of the multinational companies and absence of consumers' representation in the price determining OCAC.

Petroleum dealers, consumer bodies, transporters, politicians have been asking the government to revert to the previous system of oil price reviews, but the government has yet to give their pleas a sympathetic hearing.

In February, Federal Petroleum Minister, Chaudhry Nourouz Shakoor in the Senate session promised to undertake a study of oil pricing system by a senate standing committee after receiving a volley of criticism from the upper house. But so far nothing has been done on this issue.

The minister had said in the Senate session that petroleum prices had been increased by 34 times as compared to decrease of 21 times from 2001 till February 2004 and rates remained unchanged by nine times during the period. He had also admitted that increase in prices had played havoc with the life of the poor. However, the minister reckoned that masses had been hit by the oil price hike but he was quite satisfied with the price mechanism until the burden of prices after the Iraq war because Pakistan imports 85 per cent of its requirement as compared to 15 per cent which was met through from local production.

The then petroleum secretary, Abdullah Yousuf, now the CBR chief, had appointed chairman Pakistan Petroleum Dealers Association (PPDA), Abdul Sami Khan as a member five months back so that he could attend the OCAC meeting.

The OCAC did not bother to call upon the PPDA chief and when he put up the matter before Abdullah Yousuf for not receiving any invitation, the petroleum secretary advised the OCAC secretary to start calling him.

Former Secretary OCAC, Feroz Cowasjee had called upon him once but later, PPDA chairman had not been invited by the OCAC to witness the price fixation proceedings.

"The price fixation mechanism is not transparent. The OCAC should have included me if the system is transparent. Why they are hiding the realities from the general public," Sami Khan said adding that "the general public has never been satisfied with the OCAC working."

He urged the petroleum ministry to add the representation from the general public on the OCAC body in order to restore the confidence of consumers.

Research Head of Invest Capital and Securities, Mohammad Sohail said that since January 2003, prices of different oil products in Pakistan have increased by an average 10 per cent. He said this is mainly due to mounting oil prices in the international market as OPEC is actively curtailing its production so that prices remain on the higher side. In this situation, Sohail said "the only way the government of Pakistan can provide relief is to reduce the taxes and levies imposed on oil products."

Secretary, OCAC, Abid Saeed Ibrahim defends the price review meetings of oil prices by ruling out any possibility of price manipulation. "The process of reviewing and announcing prices is totally transparent," he told Dawn.

He also said that petroleum development levy (PDL), 15 per cent sales tax and other taxes and levies play a major role in domestic prices. "We cannot ask the government to curtail it as it is their prerogative," the secretary said while justifying heavy taxation on petroleum prices that taxes and duties on oil products are also higher in all over the world because governments earn a sizable revenue from it.

In Pakistan, the retail price of petrol carries around 40 per cent of taxes in shape of PDL and GST alone besides other charges like fixed duty, ex-refinery/import price (variable), inland freight, dealer margin, distribution margin etc. In diesel, PDL and GST share 26 per cent of the taxes in the retail price.

The cumulative impact of taxes and duties on petrol reaches over 50 per cent and over 30 per cent on diesel.

He said that crude oil prices witnessed a jump by seven times as against fall by two times during July to February 2003-2004.

Abid dispelled the market impression that the OCAC is a "cartel" of multinational companies, having full patronage of the government. He said there are agreed formulas, mechanisms and parameters on which the domestic prices are being calculated.

The president, Karachi Transport Ittehad (KTI), Irshad Hussain Shah Bokhari said that only Re1 has been increased in the transport fares from January 1, 2003 till April, 17, 2004, which does not reflect the actual increase in fares if increase in diesel prices is taken. On January 1, 2003, diesel was selling at Rs 21.14 as compared to current rate of Rs 24.02 per litre.

Transport fares were increased in February 2003 by Re1 but reverted on April 21, 2003. But fares had been revised upward on February 23, 2004 as a result of increase in diesel prices.

When President Musharraf came into power, diesel was selling at Rs10.66 per litre as compared to current price of around Rs24 per litre. At that time, bus, mini bus and coach fares were Rs3.50, Rs4.50 and Rs8 respectively. Despite meteoric rise in diesel prices and frequent changes in transport fares in four years, the current rate of Rs5 for buses, Rs6 for mini buses and Rs10-11 for coaches do not justify the diesel price rise of over 100 per cent in four years, he said.

"Price change on every 15 day has now become a sheer burden on the transporters, that resulting in frequent war of words between passengers and conductors in public transports," Bukhari said, urging the president and prime minister to restore the old system of price fixation of six months instead of fortnightly price revision.

He urged the government to break the OCAC and take full control of the price fixation process so that transporters as well as consumers could feel relief.

The OCAC, in majority of its fortnightly statement on prices, have made a routine practice for issuing a three to four paragraphs press release, just showing the charts of prices while skipping the main reasons behind the increase or decrease of prices. Sometime, the committee issues statement, stating the price increase of finished products and crude oil in percentage or by giving the rise to the actual price without giving the previous rate of the fortnight. Even the OCAC statement has also remained silent in giving the comparison of rupee-dollar parity rates of the fortnights.

This stereotype practice of issuing plain statements every fortnights by the OCAC have always sparked doubts in the minds of the general public over the transparency in evaluating the prices.

Majority of the section of general public basically link the changes in international crude oil prices with the domestic oil practices which is a wrong perception as domestic prices are fixed on the basis of fluctuation in crude and finished oil products of the Arab Gulf region as Pakistan is situated close to the Middle East region.

According to the OCAC, freight is another important factor. Crude oil is transported in tankers usually called "dirty tankers" while finished products are transported in tankers called "clean tankers." The freight for products is therefore substantially higher than that of crude oil.

The ex-refinery price of a product, which is paid to the local refineries, equates to the landed cost of the product. It relates to the import parity price of the product if the same were to be imported. The base price relates to the relevant products FOB price averaged for the fortnight as quoted in the Arab Gulf region to which are added other elements like freight, letter of credit (L/C) and bank charges, wharfage to arrive at the refinery price.

Inland freight is used to equate the prices of the products all across Pakistan. Around 29 core depots have been identified and prices are kept constant over these locations. The product wise cost of product transportation from refineries or imports to these 29 depots is allocated to the respective product and it is called primary transport cost. This element represents actual cost and does not include any profit element for the marketing companies.

The cost of transporting product from these 29 depots to the respective retail outlet is called secondary transport cost and varies in accordance with the distance of the retail outlet from the nearest depot. This cost is over and above the fixed sale price determined by the OCAC for the 29 depot. Cartage rates for the transporters are revised on a quarterly basis to reflect both the upward/downward movement in the prices of diesel.

The government also fixes the distributor and dealer margins, which represent the profit element for the oil marketing company and their dealers. These margins are represented as a percentage of the fixed sale price. Till February, 2002, the margins were two per cent and three per cent respectively for the OMCs and dealers when they were revised to three and 3.5 per cent. From July 2002, these have been fixed at 3.5 per cent for OMCs and four per cent for dealers.

A 15 per cent sales tax is calculated in consumer pricing and this varies in accordance with the movement in the price of various products based on the FOB value and the rupee/dollar parity.

Despite deregulation, the government used its interference in times of referendum and elections by freezing the oil products prices for a number of fortnights to gain popularity among masses. However, the government had acted very slowly to take a hit on itself by reducing local taxes and levies when domestic oil products were under pressure due to rising rates of crude oil and finished products in global markets.