EDITORIAL: Policy inconsistencies and delays are the biggest impediments to investment. Irrespective of who is in power, the consistent outcome is the reversal of policies adopted by the previous opponents. The other issue is the delay in the policymaking processes by the civil bureaucracy. This practice is evident in the progress on the degradation of the petroleum sector and it downstream activity, particularly the policy pertaining to oil refineries, which has been in the making for the past four years — four governments changed hands and as many ministers, but the refinery policy is yet to be finalised. And every time media inquires about it, every incumbent government says it’s going to be finalised in a week or two. How can this attitude attract serious money?
Another issue that has surfaced lately is the engagement of stakeholders in deciding about the mechanics of deregulation in the downstream oil sector. The deliberations take place almost daily. However, no one from the private sector, including Oil Marketing Companies (OMCs) and refineries, receives any invitation to these meetings. The Oil Companies Advisory Committee (OCAC) has shown resentment towards it by issuing strong statements that have been covered by all mainstream newspapers lately. The management of private sector companies — especially OCAC Chairman Adil Khattak — is visibly upset about not engaging private players who have been in the business for decades.
It is important to note that the managements of government-owned companies in the value chain are dismissive of their private competitors. They argue that PSO and PARCO have 50 percent share in the OMC and refinery sectors, respectively, and their presence is enough to safeguard the interests of the industry. Their argument is not only implausible but it also shows arrogance of power over the competitors. The involvement of the private sector is imperative for bringing efficiency and innovation to the sector. At one end, the government is desperate to privatise distribution companies in the power sector while, on the other hand, riding roughshod over the public players in the petroleum sector. This defies logic and exposes the diverting interests of power and petroleum sectors.
PSO has historically linked Pakistan’s petroleum prices to imports. The then PTI (Pakistan Tehreek-e-Insaf) regime pegged the ex-refinery prices to the international benchmarks. That was the right move. Now degranulation is progressing towards delinking incidentals and margins from PSO. That is again the right move. However, only engaging public-owned companies in consultation adds sour taste to it. The government should rethink. The next step should be to abolish (or limit) the Inland Freight Equalization Margin (IFEM) system, which has been grossly abused in the last few decades. This should end. Then the government should end the smuggling of diesel from Iran, which is hurting the players in the formal sector. The government should also address the issues related to the refinery policy.
There is an issue of sales tax exemption on petroleum products that was done in the last budget, and the refinery policy, which was almost at the point of finalisation, got stuck there. The government says it will fix it in the FY26 budget because it has to present it to parliament. A year is being wasted. What message does the government send to private investors? The country needs investment in long-term projects, be it in the form of local or FDI. However, when you reverse policies midway, the one who has committed suffers, and that hinders others from investing irrespective of commercial viability and having a vibrant market. Pakistan is not the only destination for investors, and that holds true for local investors too, who are increasingly looking outside due to high taxation and inconsistent policies, which hinder capital formation.
Copyright Business Recorder, 2025
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