The deregulation decision would discontinue payment of price differential claims (PDCs) to oil marketing companies (OMCs) and refineries and stop contribution of about Rs7.8 billion to the energy sector’s circular debt every month. – File Photo by AFP

ISLAMABAD: After eight straight months of increases, the government on Tuesday cut petroleum prices by 0.2 per cent to 6.5 per cent with immediate effect in view of the decline in international market and partially deregulated the price fixation of some products to save about Rs10 billion a year.

It will provide a saving of Rs10 billion to the government and result in upgradation of refineries to produce petroleum products of Euro-II standards.

Under the decision, the price of high octane blending component (HOBC) was increased by 12 per cent, or about Rs12 per litre, to Rs112 per litre. The HOBC prices should have increased by about 22 per cent due to price deregulation, but Pak Arab Refinery Limited – the only HOBC producer in Pakistan – was persuaded to stagger the required increase over two months. Consumption of HOBC in the country is a nominal 1000 tons per month and it is mostly used in high-end vehicles.

According to a notification, the price of motor spirit (petrol) has been reduced by 0.2 per cent, or 18 paisa per litre, to Rs88.23 per litre. The price of kerosene was cut by Rs5.05 per litre, or 5.6 per cent, to Rs84.65 while that of light diesel was reduced by Rs5.78 per litre, or 6.5 per cent, to Rs82.52.

Likewise, the price of high speed diesel has been cut by Rs3.20 per litre, or 3.3 per cent, to Rs94.11 from Rs97.31 per litre. The petrol price should have dropped by 74 paisa per litre instead of 18 paisa and HOBC should have reduced by 67 paisa per unit instead of a Rs12 per litre increase. The price reduction would have been slightly higher under the existing mechanism. The prices of HSD, petrol and kerosene on an average declined by 4.5 per cent, 2.6 per cent and 7.2 per cent respectively in the international market in May.

The oil prices had dropped last time in September last year and since then rose by more than 31 per cent since then.

The price deregulation of petrol, HOBC, light diesel oil (LDO) and aviation fuel, along with elimination of inland freight equalisation margin (IFEM), was approved by the Economic Coordination Committee (ECC) of the cabinet on October 15 last year on the recommendation of Justice Bhagwandas Commission. The implementation of the decision was, however, withheld due to increasing pricing trend in the international market.

Under the ECC decision, all depots were to be eliminated and there should have been different prices in various parts of the country, but complete elimination of IFEM has been postponed due to political opposition from Awami National Party, JUI-F and Pakistan Muslim League-N because prices in the northern part of the country would have gone much higher than Karachi and other southern parts.On Tuesday, the petroleum ministry issued a notification allowing refineries and oil marketing companies to fix and announce on monthly basis the ex-refining and ex-depot prices for petrol, HOBC, LDO and aviation fuel on competitive basis.

The refineries and OMCs would be bound to keep ex-refinery prices of these products lower than Pakistan State Oil`s average actual import prices of the previous month, excluding incidentals and wharfage. Incidentals and wharfage for calculation of High Speed Diesel (HSD) ex-refinery price will also not be applicable.

For imported products, only actual incidentals would be allowed to be charged by the companies. In case of non-availability of PSO import prices, the refineries will fix their ex-refinery price under the existing import parity pricing formula, without incidentals.