ISLAMABAD: After shifting to a weekly review of petroleum prices in the wake of the Iran-US war, the federal government has now decided to move towards deregulation of the petroleum sector in a phased manner — yet another economic experiment at a time when consumers are already paying a heavy price for ad-hoc policy shifts.
Sources privy to the development said the government is proposing to cut the crack spread on high-speed diesel [HSD] from $70 to $35-40 per barrel, while under the proposed Inland Freight Equalization Margin [IFEM] reforms, the number of petroleum depot points is recommended to be slashed from 22 to 11.
The decision was taken at the fifth meeting of the committee constituted by the Prime Minister to review the pricing mechanism of petroleum products. The meeting was chaired by Federal Minister for Petroleum Ali Pervez Malik.
According to government officials, Pakistan’s own experience suggests deregulation coupled with effective competition can deliver significant benefits to consumers. They cited the example of high-octane blended components, prices of which are already deregulated, where oil marketing companies compete on price and offer better services.
A similar precedent, officials argued, exists in the telecom sector where liberalization replaced a rigid, government-controlled pricing regime, leading to lower tariffs, improved service quality and greater innovation.
“The government should limit its role to collection of appropriate taxes and duties and leave pricing to the competitive market. This will ensure lower prices, better service and more choices for consumers,” an official told this correspondent.
During the meeting, sub-committees presented their recommendations on the petroleum pricing framework, while international audit firm KPMG presented a comparative review of petroleum product prices and taxation structures in regional countries.
Participants appreciated the new daily pricing formula and measures proposed to enhance transparency and curb unwarranted price volatility. The meeting was informed that a dedicated dashboard has been activated on the Oil and Gas Regulatory Authority [OGRA] website, where daily prices, the pricing formula and relevant Platts data are being made available to the public to ensure transparency.
Federal Minister Ali Pervez Malik stressed that OMCs must be bound to complete digitalization of the petroleum supply chain to improve transparency, traceability, efficiency and accountability.
The meeting also reviewed the existing moratorium on licensing of new OMCs and its implications for competition, investment and market structure. Members agreed that a comprehensive review of the IFEM Pool system was also overdue.
The long-pending issue of windfall tax on oil companies also came under discussion. It was decided that the Ministry of Finance, Federal Board of Revenue [FBR] and Petroleum Division will hold consultations and present a joint report in the next meeting.
The meeting was attended by National Coordinator NCMC Lt. Gen. Zafar Iqbal, Minister of State for Finance Bilal Azhar Kayani and other members of the committee.
Critics, however, warn that moving from a controlled to a deregulated regime without a strong, independent regulator and foolproof checks against cartelization could become another costly experiment for the end-consumer, who is already reeling under the impact of frequent price revisions and inflated cost of living.
