The government appears to be clearing the backlog of key proposals emanating from the erstwhile Ministry of Petroleum and Natural Resources irrespective of their economic, constitutional and Centre-provincial implications.

The decision-making on these issues had been held up at forums led by former prime minister Nawaz Sharif and Finance Minister Ishaq Dar pending detailed institutional consultative process or politico-economic concerns. Prime Minister Shahid Khaqan Abbasi is making sure these matters are settled fast.

In recent weeks, Prime Minister Abbasi, while presiding over a meeting of the federal cabinet, decided to empower oil marketing companies (OMCs) to independently set the price of high-speed diesel (HSD) without an updated market study.

Simultaneously, the commission for dealers and marketing companies on the sale of petrol was also increased by about 33 paisa per litre.

On the other hand, he reversed the deregulation of liquefied petroleum gas (LPG) after almost two decades through the federal cabinet even though it should have gone to the Council of Common Interests (CCI).

The initiatives for gas sector reforms were also taken on a fast-track basis, along with changes in the exploration and production mechanism of the oil and gas sector, but have so far been stalled following serious question marks raised by the provinces over the intention, manner and expected outcome of the process.

The subject was taken up in a curious manner. The summary was moved in a rush without the advance mandatory circulation and the decision was not officially announced

HSD has a predominate share in Pakistan’s petroleum consumption, used mostly in transport, agriculture and power generation, and is a major source of revenue to the government with growing consumption patterns.

The decision on the HSD price deregulation was allowed despite a study conducted by the Pakistan Institute of Development Economics (PIDE) — a public-sector institution — concluded two years ago that Pakistan’s market was not fit for deregulation of two key petroleum products: HSD and petrol.

Interestingly, the Planning Commission, Oil and Gas Regulatory Authority (Ogra) and Federal Board of Revenue (FBR) also opposed the move to give up the government’s powers to fix HSD pricing.

The prime minister overruled the opposition and ordered a three-month try to the new arrangement with a review at the end. He went on to add that the deregulation of petrol pricing would be next.

The Ogra’s role was contained to the extent that it would develop a mechanism to monitor the OMCs commercial stock position and the dealers’ inventory system, knowing well the fact that Ogra’s total human resources was no more than 200 staff and it lacked the technical capability to judge product quality.

The Planning Commission and Ogra disagreed with the petroleum division’s argument that the deregulation of diesel prices will lead to increased investment and creation of additional storage capacity.

They believed the same argument for the partial deregulation of the oil sector involving healthy incentives of ‘deemed duty’ was misused in 2000 for minting billions of rupees in additional profits instead of increasing storage capacity and infrastructure.

The PIDE had concluded that the argument that deregulation would unleash competitive forces in the petroleum industry could be negated as three main OMCs held more than 80 per cent of the market share, with PSO alone occupying more than 50pc.

An indicator of market concentration — the Herfindahl-Hirschman Index (HHI) — for Pakistan’s petroleum industry was close to 0.35, which showed a high level of concentration in the industry. High concentration in any market implies greater chances of non-competitive behaviour and cartelisation, leading to inefficiency, among other things.

On the other hand, the federal cabinet went ahead with reversing the deregulation of LPG prices even though it was expanding the sector through LPG air mix plants across the country.

The federal cabinet appointed a price advisory committee comprising managing directors of all the public sector LPG producers amid criticism by LPG dealers and marketing companies. They saw LPG producers as the key reason behind high domestic prices.

This would create a unique regulatory environment where the advice of the regulated entities (licencees) would be binding on the regulator. The manner in which the subject was taken up was also very curious. The summary was moved in a rush without advance mandatory circulation to the stakeholders and the decision was not officially announced.

“Due to paucity of time, the summary could not be circulated to the concerned ministries/organisations,” the summary to the cabinet said, adding that “LPG prices will be revised by the Ministry of Energy (petroleum division) from time to time based on recommendations of the LPG pricing committee” and will be notified by Ogra.

Ogra warned that without a private sector industry representative, the price committee would attract suspicion of conflict of interest and hamper efficient regulation.

The regulator put on record that the government could issue policy guidelines under section 21 of the Ogra law only after cabinet approval but any guidelines issued by the price committee “shall be inconsistent with the law”.

Published in Dawn, The Business and Finance Weekly, October 16th, 2017