ISLAMABAD, July 22: The government has frozen the margin of oil marketing companies (OMCs) and commission of dealers for the time being to pacify the public outcry against the unprecedented surge in prices of petroleum products.

“Dealers’ commission and companies’ margin on oil products have been capped at the July 1 position. This will have an annual saving of Rs7.5 billion,” acting secretary of petroleum G.A. Sabri said at a press conference on Tuesday. Officials of the finance ministry and Oil and Gas Regulatory Authority (Ogra) were present.

OMCs’ margin and dealers’ commission have increased between 40 and 50 per cent on different products since February after an unprecedented rise in the international oil market. The petroleum ministry recommended the cap on a permanent basis, but the finance ministry said the decision should be taken by the Economic Coordination Committee of the cabinet in its forthcoming meeting.

Mr Sabir said the prime minister had constituted a committee to recommend ways of reducing the impact of international oil prices “to the extent possible”.

The committee, headed by Dr Asim Hussain of the National Reconstruction Bureau and comprising Federal Board of Revenue chairman Abdullah Yousaf, finance secretary Farrukh Qayum, planning secretary Sohail Safdar and G.A. Sabri, will submit its report to the premier in 15 days.

He said all lacunae in the oil pricing mechanism would be looked into and corrections would be made to minimise the impact of international oil prices on the economy and consumers.

Interestingly, Abdullah Yousaf as the then secretary petroleum had played a key role in allowing percentage based margins to the dealers and OMCs in 2000 for one year on the grounds that the local industry would improve product quality and increase storage capacity for strategic reserves from 21 days to 45 days. But, none of the conditions were met by the industry.

Before that, dealers’ commission and companies’ margin were fixed at between five and 22 paisa per litre on different products but was allowed at the rate of 3.5 and four per cent, respectively, which kept on rising as the international oil market touched new highs everyday.

Mr Sabri said the government had increased petroleum prices 13 times since May 2004, but it had not passed on the impact to consumers 87 times. He said the recent increase would not have been so big had the previous government taken timely decisions as recommended by the petroleum ministry. As a result, the government had paid Rs220 billion to oil companies as price differential claims, he added.

He said the government was still providing Rs33.93 per litre subsidy on kerosene, Rs35.42 on high speed diesel and Rs29.40 on light diesel.

In reply to a question about the unjustified deemed duty available to oil refineries at 6-10 per cent and their failure to improve product quality and enhance storage capacity for strategic reserves, Mr Sabri said he would not defend what had been done in the past but an agreement had been reached with the refineries for their expansion plans and improved quality standards.

“They will be executing their expansion and desulphurisation projects very soon.”

Ogra’s member finance said that the total subsidy on petroleum products stood at Rs30 billion per month at current rates, but the government had recovered about Rs13 billion on account of 16 per cent general sales tax, leaving behind a net subsidy of Rs17 billion per month.