July to October 2018: Domestic refinery production stands at 2.4 million metric tons

Domestic refinery production during the first four months (July to October 2018) was 2.4 million metric tons necessitating imports of 3.1 million metric tons during the same period to meet the country's consumption needs. This was stated by Oil Companies Advisory Council (OCAC) secretary in a talk with Business Recorder.
The production of Motor Spirit (MS) of domestic refineries was 805,819 metric tons and High Speed Diesel (HSD) production was 1.6 million metric tons during the first four months of the current financial year, according to OCAC website.
During the first four months of the current year (July-October 2018), consumption of both MS and HSD stood at 2.5 million metric tons each.
MS consumption has been growing very fast over the last decade while HSD consumption has almost stagnated. In 2007-8, annual MS consumption was only 1.5 million tons, which is now more than 6.1 million tons. HSD consumption was 8.2 million tons in 2007-08 and is almost the same a decade later.
According to Pakistan Economic Survey 2017-18, indigenous crude oil met only 15 percent of the country's requirements, while 85 percent requirements were met through imports in the shape of crude oil and refined petroleum products.
Due to higher taxes and a significant allocation for Oil Marketing Companies (OMCs) margins the price of HSD in Pakistan is higher compared to MS and relative to other countries of the region.
HSD is taxed lower than MS in Afghanistan, Bangladesh, Sri Lanka, and India because it is in use by agriculture sector, public transport and trucks and should be taxed lower in Pakistan as well, sources told this correspondent.Petroleum Minister Ghulam Sarwar Khan during his first meeting with ministry officials said "HSD should be cheaper than petrol in my opinion".
Diesel was priced at $0.84 a litre in Pakistan as on 26 November, 2018 which makes it the second-most costly country for the fuel after India ($1.01 per litre). However, diesel in India is $0.08 cheaper than MS.
Pakistan sells MS for $0.73 per litre to its masses (mostly to motorcyclists and car drivers), which is the second-cheapest in the region after Afghanistan, which depends on Pakistan for its imports. Afghanistan has priced it at $0.75 to the litre.
The government claimed last week that presently petroleum products in Pakistan are the cheapest in the region. Given the high rate of tax levied on petrol and diesel, this claim is inaccurate.
After 2017, on the directives of Economic Coordination Committee (ECC) headed by former Finance Minister Ishaq Dar, Oil and Gas Regulatory Authority (OGRA) discontinued the practice of comparing domestic MS and HSD prices with India, Afghanistan, Bangladesh and other countries in the region.
"It would perhaps be useful to coordinate with regulators of these countries to identify the cost components of ex-depot prices in their country for a productive comparison which may assist in future pricing strategy and may even provide a check on import costs", former Director General Oil told Business Recorder.
Currently, Pakistan sells diesel at Rs 112.94 per litre at the retail level. This includes Rs 43 in taxes, which come to 38 percent of the retail price, as well as 6 percent other costs including margins estimated at Rs 7. The government collects 28 percent tax (Rs27 per litre) on petrol priced at Rs 97.83 in retail market with 10 percent in other costs. HSD in 2005 was priced at Rs26.21 per litre against Rs40.39 for MS. In 2008, HSD price was Rs 55.15 versus MS price of Rs 75.69. However, in 2010 and onwards HSD was taxed at a higher rate - 10-16 percent - relative to MS.
The reason for higher HSD prices is higher taxation. The margin of OMCs was raised by the Government of Pakistan Muslim League-N, pushing up the price of HSD further.
The previous government, just one day before the end of its tenure on May 31, approved a hike in margins on diesel of OMCs while deregulating HSD. The price of HSD was deregulated under the government policy of liberalization. The purpose was to encourage and support investment which the government believed would lead to an increase in the oil storage capacity. A PSO official said after deregulation of margins on HSD, prices now vary from pump to pump and across regions.
The Planning Commission and OGRA opposed the deregulation of diesel prices. They argued that similar arguments were given for deregulation of the oil sector involving healthy incentives of deemed duty for old oil refineries which was misused and added billions of rupees of additional profits for OMCs, instead of increasing storage capacity. The Planning Commission supported the increase in margins on diesel and petrol on the basis of CPI but opposed the deregulation of HSD without first formulating a clear-cut downstream oil policy. OGRA also opposed deregulation, saying the OMCs already prefer sharing their margins with dealers rather than passing on the benefit to consumers.