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:
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.