ISLAMABAD: The government has decided in principle to change the pricing mechanism for petroleum products and narrow down its period to cater for the fast changing currency exchange rate and minimise losses of oil marketing companies (OMCs) and refineries.

The government has also given a commitment to the OMCs to increase their margins on sale of petroleum products on a par with dealers who have secured 43 per cent increase in margin on petrol and 70pc on high speed diesel (HSD) to Rs7 per litre each with effect from August 1.

The OMCs have now enhanced their demand for margins at Rs9 per litre to compensate for higher taxation impact.

Top government officials said a recent meeting, presided over by former prime minister Shahid Khaqan Abbasi and attended by Finance Minister Miftah Ismail, PM’s adviser Ahad Cheema, Oil and Gas Regulatory Authority (Ogra) Chairman Masroor Khan, Petroleum Secretary Ali Reza Bhutta and the Pakistan State Oil (PSO) managing director, concluded that the existing pricing mechanism put in place in July 2020 had become ineffective after a steep depreciation of the rupee against the dollar in recent months.

Assures OMCs of increasing margin on sale of petroleum products on a par with dealers

On the policy agenda is also the question of decreasing the price adjustments on a weekly or daily basis instead of the existing fortnightly basis or letting the industry set their own prices after fixing of various taxes by the government at the start of each month. The regulator would be asked to monitor the pricing mechanism in the market on the basis of set factors to avoid disorderly pricing by market players.

In the previous fortnight alone, there had been “a very sharp decline in the exchange rate”. The rate used in the previous fortnightly price determination on July 14 was Rs209.725 against a dollar. The exchange rate used by Ogra for the prices for the first fortnight of August (1-15) 2022 is Rs236.0394 per dollar.

While reviewing the implication of the steep exchange rate depreciation, it was suggested during the meeting that average interbank rate of the previous pricing period, rather than the rate of the last day as per July 2020 pricing mechanism, should be taken for the purpose of price calculation. The participants believed this would smooth the impact of rupee depreciation on petroleum products’ prices.

It was noted in the meeting that the actualisation was included in the next pricing period on the basis of actual rate used for retirement of PSO’s letters of credit. There is, therefore, no impact in the revenue of OMCs and refineries.

Subsequently, the matter was discussed with the representatives of OMCs and refineries who opposed the idea of making any change during the price review on the eve of price adjustment with effect from August 1 and wanted some time to get back with their feedback for improvement in the pricing mechanism.

Published in Dawn, August 2nd, 2022