Former Finance Minister Miftah Ismail on Tuesday explained that diesel prices in Pakistan remain excessively high due to careless flaws in the pricing mechanism set by the government and the Oil and Gas Regulatory Authority (OGRA).
He said Pakistan produces roughly 75 percent of its diesel domestically, importing only the remaining portion. However, the OGRA sets domestic diesel prices based on the cost of imported diesel rather than domestic production. This system automatically inflates prices because imported diesel is almost always more expensive than local diesel.
“Refineries gain a small extra profit from this pricing, which is supposed to incentivize them to upgrade machinery and reduce sulfur content in diesel,” Ismail explained. But due to global disruptions, particularly the ongoing war in Iran, the price spread between low-sulfur diesel traded in Singapore and crude oil has widened significantly.
He highlighted that while OGRA’s official price of imported diesel is Rs. 496 per litre, the actual cost of locally refined diesel, including crude, refining, and other margins, is about Rs. 350 per litre. This means consumers are paying an extra Rs. 150 per litre for domestic diesel.
Miftah outlined a temporary measure to reduce excessive pricing:
- Allow only Pakistan State Oil (PSO) to import diesel.
- Set domestic diesel prices based on Arab Light crude plus standard margins, with PSO compensated for the cost difference between imported and local diesel.
- Impose a levy on all diesel to fund the PSO compensation.
Miftah’s Case Study
If imported diesel costs Rs. 500 and domestic diesel Rs. 350, and 70 percent of diesel consumption is domestic, OGRA should set the price at Rs. 395. The Rs. 45 levy collected on 100 percent of diesel sales would cover PSO’s cost of importing the remaining 30 percent. This measure, he added, would only be necessary during the high-demand harvesting season; imports are unlikely to be needed until October.
Finally, Ismail recommended deregulating petroleum prices by May 31, while continuing to subsidize PSO for imported diesel when necessary.
“This isn’t rocket science,” he added, and grilled the government for failing to adopt straightforward solutions to ease the burden on citizens.
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It also is not rocket science that government of Pakistan has bought shame to Pakistanis through out, robbed them of their right to choose their own leaders and the judiciary is only provides relief to the rich. For the best part of last three years, the country has robbed the poor give few at the top of this pyramid scheme. You cannot ignore that fuel prices, conflict with Afghanistan, high taxes is unrelated to this fundamental political crisis in Pakistan. While theses corrupt elites are willing to wait in line for services in London and Washington, these same elites are even willing to kill at whim or when drunk and driving while helping themselves to peoples money, land and positions of authority. The PSL is joke, the elite are mentally unhinged as long as they are in Pakistan and the industry is on life support. Please do not ignore this blatant facts when “journaling” the current affairs and do not insule the public of Pakistan by doing so.