ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet is expected to allow marketing of higher-quality petrol from October with an estimated price increase of Rs2.75 per litre.

This is part of the petroleum ministry’s plan to introduce petrol — premier motor gasoline (PMG) — of three different grades of better-quality imports to replace the existing petrol of 87 research octane number (RON). The higher-grade PMG imports would include 92 RON, 95 RON and 97 RON.

Higher RON is considered an indication of better quality petrol that the petroleum ministry says will provide “reduced environmental impact due to lower emissions as a result of better engine hygiene, while simultaneously providing an enhanced motor vehicle experience to the customer”.

It will accrue benefits on account of supply sustainability, improved customer choice and efficient engine operation. It may be noted that current automobiles are designed at 92 RON or higher grade.

The annual consumer of PMG at present is about five million tonnes, of which about 70 per cent (3.5m tonne) is imported and the remaining 30pc (1.5m tonnes) is met through local refinery production.

The consumption has grown around 20pc in the last five years. “The price differential between 87 and 92 RON petrol is projected to be around Rs2.74 per litre” based on last one year data at the rate of 55 paisa per RON per litre, the ministry said.

“Keeping in view the lower prices in the international market, it is the optimal time now for switching over from current 87 RON PMG to 92 RON, which is marketed in most of the countries in the world at present,” demanded the petroleum ministry in its summary to the ECC.

Domestic refineries are not capable of producing 92 RON petrol because of their old technologies requiring substantial investments for upgrade. Oil marketing companies (OMCs), refineries and the government have, however, agreed to introduce 92 RON as main grade fuel.

For this to deliver, OMCs will be allowed to import and market minimum 92 RON petrol under the existing regulated regime while import of PMG below 92 RON will be banned. The OMCs will get 87/90 RON petrol from refineries as is the practice now and then commingle imported and locally produce grade to improve the specification to retail level at around 91 RON.

The petroleum ministry has also recommended allowing refineries to also import higher-octane products of 95 and 97 RON through change in import policy order of the commerce ministry.

Pricing formula for imported 92 RON petrol will be based on five-day average Mean of Platts Singapore (MOPS) quotations plus tender and freight premiums/incidental charges on an actual basis. The pricing of this product would be on the basis of Pakistan State Oil’s (PSO) actual landed cost while other OMCs/refineries would also follow it as is the current practice.

The pricing and import of 97 RON, to be known as high-octane blending component (HOBC), shall be fully deregulated. The pricing formula for imported 95 RON will be based on five-day average of MOPS plus tender premium, freight and incidental charges on an actual basis under the existing regulated environment.

The pricing mechanism for local refineries will be based on PSO’s actual landed import price of 92 RON minus a RON penalty factor to derive the price for 90/87 RON petrol. The local refineries that produce 92 RON either directly or through blending will get its full price on actual PSO landed import price.

Similarly, the taxes and levies and other cost elements applicable on the existing 87 RON petrol will apply on 92 RON and 95 RON petrol, whereas 97 RON HOBC is already subject to taxes.

The government would make necessary provisions for incorporation of 92, 95 and 97 RON petrol in the Petroleum Products (Petroleum Levy) Ordinance 1961, and respective rules will be made accordingly.

The Oil and Gas Regulatory Authority shall monitor the selling price of 92 and 95 RON petrol, as being down for the current 87 RON petrol. The ministry said local refineries would now produce 90 RON shortly, except for Attock Refinery which would be allowed to continue producing the current 87 RON petrol till a solution was found that reduces or eliminates their surplus naphtha production.

Published in Dawn, July 20th, 2016