Under the proposed deregulation of oil prices, the Oil Marketing Companies (OMCs) may not be bound to ensure investment from local refineries. Moreover, it will empower them to change the POL prices at their discretion after adjusting their all expenses.
Under refinery policy oil refineries are bound to make new investments and set-up huge reserves infrastructure of their own.
The OMCs fully support the deregulation of the oil prices but at the same time have the same concerns and raised some questions which need to be resolved/answered before the implementation of deregulated oil prices plan, an official source told ProPakistani.
As per the government claim, the major aim behind deregulation is to enhance competition in the industry, thus bringing the benefit of competitive price to the final consumer. Deregulation is the elimination of the control of the government from a sector or a particular industry and allowing them to do a free trade in an efficient marketplace.
It is further claimed that the deregulation of petroleum prices will help the oil refineries invest more in their existing infrastructure and produce petroleum products per the international standard of EURO-V in the medium to long term and the Oil Marketing Companies would also be able to expand their networks across Pakistan.
Under the proposed deregulated oil prices mechanism, the ex-refinery Prices are to be deregulated, and each OMC is to announce its price based on its procurement cost.
Refineries will incorporate their premiums and freight charges in their ex-refinery price and compete with imported product pricing.
Mid Country and Northern Refinery will incorporate their Crude Transportation cost in their respective ex-refinery prices as in the case of furnace oil.
The rationale of deregulation of prices will enable each OMC to absorb their cost/losses, which are incurred in terms of Forex exposure, incidentals, demurrage cost, storage cost, and any other cost.
However, the OMCs expressed several concerns about the deregulation of oil prices and raised several questions, which include:
- OMCs’ Margin to be deregulated and to be managed by each OMC which may vary from OMC to OMC and dealer margin may vary after June 30, 2022, which may be decided by the OMC
- How will OMCs ensure the product specs pricing while there are two prevailing specs as per the Government of Pakistan (GOP)? Local Refineries Produce Euro-II or less while imported product is Euro-V
- Pricing of POL products may change at the discretion of each OMC
- Taxes should be in absolute Rupees and not in percentages to simplify the reconciliation of taxes collected
- In a deregulation scenario, OMCs based on their sales and demand pattern may or may not keep all storage wet
- In case of Deregulation Refinery upliftment, requirements would no longer exist and OMCs may not be bound to procure products locally
- OMCs, based on their product movement plan may not be under obligation to use WOP Multi-grade
Deregulation may promote mafias managing prices on their own.