Coming amid mounting disillusionment with the country's oil pricing mechanism, more so in the wake of the recent record increase in prices, it is really encouraging to learn that at long last the government has deemed it expedient to revamp the pricing mechanism in vogue.
This has reference to a news report regarding an eventual approach made to the Canadian International Development Agency (CIDA) to study Pakistan's oil pricing mechanism, and to suggest changes in it so as to make it acceptable to all the stakeholders.
Overly belated, though, the initiative happens to be, it will appear marked by a sense of urgency. CIDA has also been asked to determine the legal and technical implications of empowering the Oil and Gas Regulatory Authority (OGRA) to fix oil prices.
This, of course, would point to the need of basic change, as now felt in the seemingly intractable policy in the matter. Needless to point out, evidence of progress already made in that direction should inspire hope for a long elusive end to the predicament which has continued to bedevil this vital sector of the economy. CIDA has already appointed legal and technical consultants to study the oil pricing mechanism and to suggest changes to make the system acceptable to all concerned.
Also welcome, in this regard, will be the revelation that the CIDA advisors, among other things, would involve themselves in a study of the OGRA Ordinance, primarily with a view to determining whether it contains a provision to allow the transfer of oil pricing system to the regulating authority. Naturally, as such, they would be looking into its legal and technical aspects, before expressing a firm opinion in the matter.
Apparently enthused by the way in which CIDA is proceeding with the task, an official of the Ministry of Petroleum is reported to have expressed the hope of expeditious finalisations of its recommendations, around which would revolve the decision for any change in the existing oil pricing system.
Again, in the final analysis, it will, in all probability end up in adequately empowering OGRA for determining petroleum prices in the country, pursuant to fluctuations in the international market.
The need for a change in the system appears to have fired the imagination of the government much earlier, probably in response to the oft-quoted recommendations of the Senate sub-committee in March this year. For while strongly defending the record raise in petroleum prices only last week, Petroleum Ministry Secretary, Ahmed Waqar, had said that the government was examining the role of Oil Companies Advisory Committee in fixing the prices, referring at the same time to the recommendations of Senate standing committee too.
In far as the recommendations of the Senate sub-committee are concerned, they were based on a realistic approach, following several sessions with the refineries, oil marketing companies and officials of the Ministry of Petroleum. Since POL products consumed in the country come from our own refineries or met from imports made by the oil marketing companies, their role in determination of its price can hardly be under-estimated.
The same can be said about the other stakeholders, including the consumers, the transport agencies, and others. As for the oil produced inside the country, note has to be taken of the cost factor at various stages, from wellhead to down to the consumer.
The same can be said of the imported varieties. A significant element of the cost is transportation and storage before reaching down to the consumers. Moreover, since consumer destinations are not the same, the price equalisation formula may be seen as being at variance with the avowed market based mechanism. All this put together will point to a much bigger role in oil price determination to OGRA, as an effective regulatory body.
One hopes that focusing due attention on it, CIDA will come out with just the right kind of strategy Pakistan needs for determination of oil prices, from time to time, to the satisfaction of all the stakeholders.
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