Ministry of Petroleum and Natural Resources has advocated continuation of existing (weekly basis) fuel price adjustment formula which according to Prime Minister's Advisor is in the interest of consumers. Petroleum Ministry in its summary for the ECC, available with Business Recorder has stated that the Judicial Commission constituted by the Supreme Court, under the chairmanship of former Justice Rana Bhagwandas, recommended developing a programme and road map for phasing out deregulation of petroleum products.
Accordingly, Ministry of Petroleum and Natural Resources moved a summary on 6th August 2012 for weekly price adjustment of petroleum products. The ECC on August 7, 2012 approved the proposal of Ministry of Petroleum and Natural Resources regarding weekly adjustment of prices and took the following decision "The ECC of the Cabinet considered the summary dated 6-8-12 submitted by the Ministry of Petroleum and Natural Resources on 'Adjustment of Petroleum Products Prices on Weekly Basis' and approved the fixation of prices of petroleum products on a weekly basis, as proposed in Para-2 of the summary, on trial basis for three months, whereafter the Ministry of Petroleum and Natural Resources will again place the matter before the ECC of the Cabinet".
In pursuance of the above decision, Ogra has been determining the weekly prices of petroleum products starting with 3rd September 2012. So far, 7 weekly changes have been announced under the new system. Prices are announced in the night of every Sunday and applicable the following Monday. These prices are based on the same methodology as was applicable under fortnightly or monthly adjustment, which is duly approved by the ECC.
According to the summary weekly system was devised to discourage hoarding because it will be practically difficult and with small adjustments not so much profitable. It was further surmised that pass-on of quicker adjustment (small marginal changes) of increase or decrease in prices to the consumers is more beneficial compared to accumulated adjustment that takes place over a longer period of adjustment. While it breaks down increases into smaller increments, it immediately passes on the benefit of decreases, which may otherwise be averaged out over a longer period.
Weekly pricing system has been followed for the last 7 weeks and it is now possible to make an assessment on the relative benefits of this with the systems of fortnightly and monthly adjustments. Prices of petrol, diesel and CNG have been used to observe their behaviour under alternative adjustment regimes. Graphical Representation has also been provided for each of the three products. Evidently, on balance weekly adjustment has been beneficial in the case of petrol and CNG and neutral for HSD. After assessment of weekly prices system, it is concluded that this system will work in favour of the consumers:
(i) larger adjustments in prices, especially increases, will be difficult to pass on the consumers; (ii) once the adjustment is delayed the whole cycle is broken and government ends up losing significant amount in Petroleum Levy (2011-12, Rs 51 billion); and (iii) in this system no adjustment in Petroleum Levy (PL) has so far been made in this year, while in the preceding year (2011-12), the PL of Rs 51 billion was adjusted to absorb increases in petroleum product prices.
However, the Senate and National Assembly Standing Committees on Petroleum and NR strongly opposed the weekly system. Subsequently, the National Assembly has also passed a resolution to discontinue the weekly price adjustment system and revive the monthly price adjustment system.
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