KARACHI, March 18: The government and the oil industry are engaged in a discussion as to how further deregulate the price mechanism and introduce a new system of fixing price of POL products on a daily basis instead of current fortnightly revision. A committee comprising oil industry experts and officials of Ministry of Petroleum and Natural Resources has been formed this month to discuss at length the possibilities of fixing POL products prices on daily basis, which is currently being in vogue in many countries. “The above plan is currently at study stages and oil marketing companies (OMCs) and refinery operators are working out as how feasible will be to go for daily POL price fixation,” senior executives in an OMC and a refinery told Dawn on Friday. Oil industry experts are also working out the modalities whether there will be a chance of a wild fluctuation in domestic prices if daily price fixation mechanism is implemented. Meanwhile, an OMC executive said there are slight chances of 10-12 paisa fluctuation daily if POL prices are fixed on daily basis instead of a wild fluctuation in rupees on fortnightly basis. Industry experts are evaluating the pros and cons of this proposed plan whether rates at the petrol pumps, owned by different OMCs like PSO, Shell, Caltex and Total, will have a difference in price or there will be one price all over the country.
Meanwhile, a refinery operator said that fixing price on a daily basis requires an effective communication system in the country in case the government and the oil industry agree on implementing one price all over the country. If oil industry agrees on daily price that will vary from pump to pump, it may prove feasible thus opening a new competition in the market and an open choice for the end-users.
In various countries, their governments have set a maximum limit of selling POL products at pumps and the daily price fixing mechanism is running successfully. Sometimes, it has been seen in some countries that the price of POL products in the mornings and the evenings have different readings due to intense competition.
The government and oil industry people have not set any specific deadline in this regard as a lot of home work is to be done in order to come out with a comprehensive plan to implement the daily price fixing mechanism.
Besides, the government and the oil industry are also discussing curtailing the current 29depots, situated all over the country, to just eight depots that will help in reducing the distribution cost of diesel.
A committee, comprising industry experts and Petroleum ministry officials, is also working on this plan.
An executive said that the plan to reduce the depots has been considered following the commissioning of $480 million White Oil Pipeline (WOP) that transports diesel from Karachi to Mehmoodkot.
These are some of the long-term plans of the oil industry and the government in order to reduce the cost of domestic POL products to some extent as rising international Light Arab Crude Oil prices and product prices are set to give a big jerk to the consumers’ sentiments in coming fortnights.
In this situation, the government is continuously seeking advice from the OMCs and refinery people as to how the impact of rising international oil prices on the consumers can be offset.
“Think of the crisis situation if global oil prices peaked to $80 a barrel in case of US attack on Iran,” chairman and chief executive of Shell Pakistan Limited (SPL), Farooq Rahmatullah told Dawn without pointing out an immediate push button solution to the lingering crisis, caused by frequent increase in international oil prices.
He said that there is no immediate solution in the sight to nullify the impact on local oil prices in the aftermath of wild increase in global oil prices.
The total annual profitability of the oil industry is Rs9 billion. “Suppose the profitability is set aside then it will hardly make a major difference in the price of POL products,” he said adding that the impact of skipping the annual profit of Rs9 billion will come in shape of decline of 54 paisa a litre, which is a peanut.
Industry’s total investment in the last 10 years has been Rs117 billion or Rs11.7 billion per annum against the profit of Rs9 billion per annum, he said ruling out the impression that the oil industry operates on 100-200 per cent profit annually.
“We are not making more but we are making investment in the country and getting return after 10-15 years,” Shell chief said.
He said that the rising domestic price is a big issue and the solution does not lie in setting aside the profitability of the oil industry that makes a little impact of 54 paisa a litre.
“We have to tighten our belts and prepare to face the future challenges like paying higher prices of POL products as multiple factors are pushing up world oil prices,” he said. These issues have been discussed with the government, Farooq, who is also the chairman of Oil Companies Advisory Committee (OCAC), said.
Taking the case of diesel, he said currently there is no petroleum development levy (PDL), which was 44 paisa a litre in the last fortnight. The OMCs and the government are bearing Rs1.92 a litre.
At a time when there is hardly any chance for a domestic price cut, reduction in 15 per cent general sales tax (GST) to 10 or five per cent can make a difference in domestic price. However, it seems that the government is not considering this option as it may turn upside down the main source of revenue collection from petroleum products under GST.
The government will miss the target of Rs47 billion in terms of PDL collection during 2004-2005. The import bill for the current fiscal year will also jump to $4.5 billion from $3 billion in the previous fiscal due to rising international oil prices.
Murad Ansari at Khadim Ali Shah Bukhari Securities expects a pre-tax inventory gain of Rs246 million for Pakistan State Oil (PSO) and Rs102 million for Shell as a result of March15 price hike in POL products.
He said that the government would continue to raise domestic POL prices in line with international oil prices. A decision to cap petroleum prices would send a negative signal to prospective investors of the PSO about the intervention of the government in price setting, he added.