NationalVOLUME 15 ISSUE # 23

Mishandling petrol prices

In recent weeks the government has committed serious mistakes in fixing and refixing POL prices. Consumers faced an overnight shortage of gasoline and diesel at filling stations when the government had announced an unprecedentedly large increase in their prices a fortnight ago. The earlier lowering of the prices by a big margin and later an equally hefty hike were mishandled.

It may be recalled here that after a steep reduction in the prices about a month ago, petrol disappeared from the market, despite the federal government’s repeated promises of controlling the “mafia” that was responsible for the whole mess. Immediately afterwards, the government shocked everyone when it decided to hike the prices of petroleum and its products four days ahead of the usual monthly price review. Perhaps, it would have been better not to go for a heavy cut in POL products’ prices in the first place as it would have obviated the need for the massive increase later on. That’s what the petroleum division is said to have advised the government. Had the government heeded the advice, the confusion and mess that was created could have been avoided.

The PTI government later regretted its decision. According to a detailed report submitted to the federal cabinet by the Oil and Gas Regulatory Authority (OGRA), the regulator was bypassed altogether in the decision-making process, undermining its position. It was, in fact, the responsibility of the petroleum division to ensure adequate stockpiles. Yet, not only did the petroleum division not perform that crucial duty, it also imposed an import ban just when the supply situation was threatening to spiral out of control. Even the industry’s request at the time, that the price be reviewed fortnightly instead of monthly, considering the unprecedented market volatility, was not accepted. One after the other, it took bad and thoughtless decisions that hurt the consumers as well as other sectors.

It may be pointed out that the government had taken the right decision when it decreased petrol prices a little over a month back, because of historically low international oil prices. But the government erred again and over-corrected the price reduction. Historically, POL products’ prices in Pakistan are fixed with an eye on the prices of the products in India and Afghanistan because of the porous nature of our borders.

It is no secret that in case of a substantive price differential, POL products are smuggled out of the country. According to media reports, there were reports of extraordinary demand of fuel in Khyber Pakhtunkhwa during the month of June. While oil marketing companies were blaming mismanagement by the government for the shortage of POL products, the Petroleum Ministry attributed it to a sudden surge in demand due to the easing of Covid-19 lockdown and accused the oil marketing companies of not maintaining the mandatory stocks of products and indulging in hoarding to avoid losses and make a killing once the prices rebound.

Needless to say, an upward revision of the prices of POL products results in big profits for the entire downstream chain of the petroleum sector in the shape of “inventory gain”. On the other hand, in the event of a reduction in the prices results in inventory losses and dealers, who operate petrol pumps, simply do not have the capacity to absorb such a loss. Since POL prices are regulated by the government and market players do not have much elbow room, it is essential that the government must, at all cost, avoid heavy and sudden changes in POL prices for any reason whatsoever. In the light of the recent experience it is a must to review the entire mechanism of the petrol price fixing process to stabilise the situation of supply and demand on a permanent basis.

Questions have been raised from time to time about defects in the petrol pricing mechanism and also about the hefty levy that the government extracts as its pound of flesh. The government has now set up a four-member committee to probe the recent shortages of petrol and fix responsibility and re-examine the impact of the 27 to 66 percent increase in POL products’ prices notified on June 26, following a public outcry and consider making some downward adjustments.

The committee is led by Shahzad Qasim, special assistant to the PM on mineral resources, and comprises Rashid Farooq, a former member of the Oil and Gas Regulatory Authority, Asim Murtaza, Chief Executive Officer of the Petroleum Institute of Pakistan, and Naazir Abbas Zaidi, a former executive of Hascol Petroleum and Pakistan State Oil. In the opinion of oil industry experts, given the structure of the committee, no independent and objective analysis of the issue can be expected from it. According to them, the task should have been assigned to a team of independent professionals in the field for a meaningful and conclusive report. Petrol prices are a sensitive issue which needs to be solved on a permanent basis. The matter needs attention at the level of the Prime Minister himself.