Oil sector

ARTICLE: In end May 2020, the federal government announced a big reduction in the price of petrol by Rs 7.06 per litre for the month of June in line with a dip in global crude oil prices due to virus-fuelled lockdowns. Consequently, the price of petrol came down from Rs81.58 to Rs74.52 per litre, kerosene oil's to Rs35.56 from Rs47.44 per litre, whereas the price of high-speed diesel (HSD) recorded a nominal increase of 15 paisa per litre. The reduction, benefiting all segments of society, triggered laurels for the incumbent government.

With these reductions, Pakistan boasted of having the cheapest fuel prices compared to other states in South Asia. All of this sounded great. But, merely one month after the said reduction, the government announced a record increase in fuel prices effective 27th June. The hike ranges from 27 percent to 66 percent, depending on petroleum product . This hefty increase drew nationwide condemnation from the same segments of society that had showered praise on the government a month ago.

The reduction in oil prices in end May was dramatic but the increase in end June was more dramatic. In between these two dramatic events, in just a month's time, much has happened and exposed. The month witnessed the hoarding, shortage and black marketing of oil products. It effectively exposed the incompetence of country's regulators, the laid back and indecisive style of governance of the oil ministry and its allied departments and raising of questions on the conduct of Oil Marketing Companies (OMCs) operating in Pakistan. As always, the month witnessed a non-ending bout of blame-game which inevitably leads to no conclusions and no lessons learned.

To pacify the voices of discontent within the ranks of the government, the Prime Minister has constituted a four-member committee to probe the recent shortages of petrol and fix responsibility and re-examine the impact of 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. The structure of the committee, based on former and present government functionaries, speaks for itself. The committee is not expected to deliver independent or convincing conclusions. The work should have been delegated to independent professionals in the field for a meaningful conclusion.

The questions that beg an answer are:

1) The wisdom of going for such a dramatic decrease in oil price for the consumer in May. It is understandable that it was necessitated by global oil price reduction, but was it wise to pass on the full impact of it to the public only to be withdrawn after a month knowing fully well that the global oil market is highly unpredictable in these uncertain times?

Other neighbouring countries in the region did not pass on any price reduction to consumers and instead built up their cash buffers.

2) When the oil prices had nosed dived, why the government did not build up its inventories and instructed the OMCs to do the same?

The countries in the region did build up their inventories and consequently faced no oil crisis in May or June.

If the committee can answer these two questions in public interest then they have at least done a part of their job well.

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

Copyright Business Recorder, 2020