These proposals, inter alia, include; (i) rationalization of deemed duty, (ii) revision of upper limits of refineries’ profits, (iii) conversion of excise duty on motor gasoline as PDL (Petroleum Development Levy) and (iv) rationalization of Oil Marketing Companies (OMC)— dealers’ margin exclusive of generalised sales tax (GST).
A careful analysis of the summary reveals important aspects and intentions of the oil refineries and the Oil Companies Advisory Committee (OCAC). On one hand, as a result of the sensitivity of the matter of POL product price fixation in the print and electronic media and the parliament, the m/o P&NR is forced to correct the serious aberrations in the pricing system, whereas, on the other hand an attempt has been made to drain out about Rs11.50 billion from public money collected as deemed duty and currently lying with respective refineries in their special accounts in the following manner:
Refinery Amount of Deemed Duty (Rs. Million) NRL 2938.00 PARCO 4194.00 PRL 2515.00 ARL 1843.00 Total 11490.00 (Details on the refineries’ websites)
The need for accountability to ensure fool proof, transparent and right decision making by various government functionaries, to keep the public, consumers and parliamentarians informed about the correct situation cannot be over-emphasised.
The MP&NR has portrayed in the summary that prices are being set as per ECC’s approved formula in a transparent manner based on international prices etc. However, the fact remains that prices continue to be fixed in a non-transparent manner as (i) the tariff protection applied since July 2002, as stated in the summary cannot be termed as the ECC’s approved formula as this was only one of the OCAC recommendations, (ii) the price fixation by the OCAC in the presence of Oil & Gas Regulatory Authority (OGRA) is illegal and against business norms and ethics owing to the concept of conflict of interest, (iii) the GOP paid Rs500 million as freight of POL movement in the year 2000-01. This has multiplied ever since Freight Pool management was handed over to OCAC in June 2001. For example in 2004-05 the amount paid as freight has risen to Rs9.1 billion, and (iv) the World Bank’s “Pakistan Oil & Gas Sector Review” as of July 2003, identifies the flaws and aberrations in the POL product price fixation and recommends measures to overcome them.
The summary further states that the Arabian Light Crude Oil prices touched the highest level of US$60.5 per barrel in August 2005. This fact is negated by the following graph, taken from an international source, which clearly shows that the prices of crude procured through Dubai origin never exceeded $57/ barrel.
Moreover, the crude prices were $35/barrel in December, 2004 and $ 45/barrel in June, 2005. Whereas, the August, 2005 prices only reflect the peak level and not the average level.
Spot prices of various key crude oils:
The revision of the upper limit of the refineries’ profits should have been considered much earlier as the overall impact of the artificially high POL prices have already doubled the inflationary impact and are rendering exports uncompetitive in the international markets. Factors which have created the need to lower the refineries’ profits at such a delayed stage also need to be identified.
The recent efforts being made by the MP&NR does not absolve it of irrational price fixation on the part of the OCAC. On the contrary this calls for an enquiry at an appropriate level that as to why the Ministry did not take action when the chargeability of the deemed duty had already expired in 2003.
In other words, the refineries were illegally charging and collecting the deemed duty in contravention of the Customs Act 1969. This also necessitates scrutiny and reconciliation of the deemed duty accounts being maintained by the refineries.
The other proposal pertains to a mechanism which would enable the oil refineries to withdraw the above mentioned Rs11.5 billion lying with the refineries in their special accounts collected as deemed duty. This money was not utilized even after a lapse of about four years.
Earlier the Advisory Committee on Petroleum, while deliberating on the issue of revitalization and restructuring of refining industry, recommended that “the existing refineries not having proper configuration and economic crude slate, may be allowed a premium on current competitive prices for three years during which, they must expand and upgrade their refineries after which they will be on same ex-refinery prices as new ones”, which in fact was never undertaken by the refineries. The oil refineries and the OCAC are trying to make an attempt through ministry of P&NR to prowl the public money.
Since this amount has not been spent on the basic purpose for which it was collected, it should be taken over by the government and spent for economic development.