Playing the blame game in oil crisis

ARTICLE: No cartel or mafia or any vested interest can effectively function or survive anywhere in the world without the abetment and collision of regulators or because of their incompetence or a combination of both. Pakistan is no exception.

The oil industry of Pakistan, comprising local and foreign Oil Marketing Companies (OMCs), refineries and oil storage facilities, prima facie, cannot be classified or described as 'mafia' or cartel. Unlike others, it has no influence on market dynamics of oil purchase price fixing nor consumer price fixing. They operate within the constraints of a highly regulated market under the dictates of the regulators and the oil ministry functionaries.

OMCs in Pakistan are basically service providers who are entitled to margins, however modest, on sales, as fixed by the government. These companies largely sustain on volumes of sales.

The regulator - Ogra - fixes the consumer price with the approval of the cabinet while the DG Oil directs and monitors the procurements and oil inventories of the oil industry. The Ministry of Petroleum is the overall supervisory body for the oil industry.

The OMCs and refineries have to maintain a robust oil inventory, which is always a subject of argument with the DG Oil. Moreover, OMCs have the freedom to only fix High Octane consumer price as per market dynamics.

The Cabinet, in its meeting held earlier this week, directed the Petroleum Ministry to form joint raiding teams comprising representatives of the Petroleum Division, the Ogra, the FIA, and the district administrations with instructions to physically inspect all petrol depots/storages with the authority to enter any site. It also directed that all those who are found involved in hoarding the commodity must face "full force of law", including arrests and forced releases from such stores.

This is an ill-advised step which may extract out some momentary benefits out of fear, but the long-term damage could be manifold. In other words, the government could lose out more than what it gains at the end of the day.

Such dramatic steps are largely aimed at regulating the real issue to the backburner, whereas non-issues are prompted by design and made to become the focus of media to move the public opinion in an irrelevant direction. Such moves are largely driven by vested interests to camouflage the core issue.

Both sides - the oil industry and regulators - must be provided an equal opportunity to be heard when there are bouts of charges and counter-charges between the two.

One argument which is being widely cited as the core issue leading to the current oil crisis is the Oil Ministry's letter of 25 March 2020, directing the OMCs to suspend the pre-agreed import of oil at cheaper price. This aspect needs to be examined in detail and in all fairness as a lead point during the course of current investigation.

Caution must be exercised to protect and preserve the interest of local and foreign investors in the oil industry in Pakistan. Of the foreign OMCs, only Shell and Parco-Total JV are left out. The rest have already left the country. Local investors have filled in the gap with sizable investments.

The way forward is undoubtedly the well-tested global model of the total deregulation of the oil industry where market dynamics, based on price and quality of service, have benefited the consumer, the nation and the industry.

(The writer is former President of Overseas Investors Chambers of Commerce and Industry)