Deregulation of IFEM: Rs 15 billion to be set aside to absorb impact of rising oil prices

The government may allocate Rs 15 billion to absorb the impact of rising oil prices in its new oil pricing formula after deregulation of Inland Freight Equalisation Margin (IFEM), Business Recorder has learnt. The judicial commission had recommended controlling deregulation of IFEM by replacing it with primary transportation charges to be built in ex-depot sale price.
According to sources, the Petroleum Ministry has also decided to continue existing rate of deemed duty by 7.5 percent on High Speed Diesel (HSD) for oil refineries and deregulate all petroleum products. "However, the government will be authorised to eliminate deemed duty whenever it desires," sources said, adding that the Petroleum Ministry will move a summary to the Economic Co-ordination Committee (ECC) of the Cabinet for approval.
After deregulation of IFEM, the price of petroleum products will increase by Rs 4.70 per litre in Northern Areas. The impact of deregulation of IFEM will be zero in Karachi and price of petroleum will vary as per distance from Karachi. "The ECC will be recommended to approve allocation of Rs 15 billion to avoid passing on the impact of prices to consumers due to deregulation of IFEM," sources added.
The judicial commission in its report had recommended eliminating deemed duty from the ex-refinery pricing mechanism. An expert committee on oil pricing comprising oil experts and economists, in line with the recommendations of the judicial commission, had also proposed removal of 7.5 percent deemed duty on HSD.
"But the refineries have claimed that they are operating at a loss and therefore it is not possible to end the deemed duty at present," sources said, adding that the situation will be explained to the Supreme Court and the ECC. The judicial commission had recommended de-regulating HOBC, LDO and JP-1.
However, the Petroleum Ministry is going to recommend to the ECC to approve deregulation of all petroleum products including Motor Spirit, kerosene oil, Light Diesel Oil (LDO), JP-4 and JP-8. "Ogra will monitor the prices of these products," sources noted.
The Finance Ministry has refused to reduce the volume of General Sales Tax and Petroleum Levy on petroleum products. The ministry opined that the Parliament had the power to reduce or fix GST. Sources said the margins of petrol and kerosene oil might be fixed in terms of per litre rupee at the level of $66 per barrel of crude oil.
The committee on oil pricing had conducted a series of exercises on ex-refinery pricing but oil refineries had rejected all proposed formulas. "Now the Petroleum Ministry is preparing a summary about oil pricing in line with the recommendations of the judicial commission to be considered by the ECC for approval," sources maintained.