KARACHI, July 5: Five basic elements constitute the consumer prices of petroleum products in Pakistan, which are ex-refinery price, government levies (excise duty and PDL), inland freight, distributor and dealer margins and sales tax.

In a detailed four page write-up, circulated among the newspapers organizations on Friday, the Secretary General, Oil Companies Advisory Committee (OCAC), Feroz J. Cawasji has explained one by one all these five elements.

About government levies on oil products, Feroz Cawasji said that the government is charging excise duty and petroleum development surcharge of Rs12.87 per litre on petrol. On diesel, it is Rs2.76 per litre representing PDL only. The government levies are the prerogative of the government, the OCAC paper says, and hence are fixed in accordance with the needs of the government. Petroleum products are an important source of any government’s revenue.

Market analysts and consumers have developed a wrong practice to link the international crude oil prices with the trend of petroleum product prices in Pakistan. Indeed this is a reasonable indicator but often tends to distort results. The most appropriate to compare trends in prices with local the consumer prices in Pakistan is the Arab Gulf region as Pakistan is situated in close proximity to the Middle East region.

OCAC secretary said product prices fluctuate based on the demand and supply situation and the differential between FOB price of crude oil and product prices represents the refiners/traders margin.

In April Arab Light crude was $24.85 per barrel as compared to $25.15 per barrel in May and $24.47 per barrel in June, while the high speed diesel prices were $25.21 per barrel in April, $26.34 per barrel in May and $26.39 per barrel in June. There is a gap between the price of particular product and that of crude oil. Although the crude oil price fell on average during June by $0.68 per barrel — the price of diesel increased marginally but the gap between the price of crude oil and diesel increased by $0.73 per barrel.

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, Feroz said.

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 arrives 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 where prices are kept constant. 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 2 per cent and 3 per cent respectively for the OMCs and dealers when they were revised to 3 and 3.5 per cent. From July 2002, these have been fixed at 3.5 per cent for OMCs and 4 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.