Petroleum products: PD for modifying monthly pricing mechanism

Petroleum Division has proposed to the federal government to modify the monthly pricing mechanism of petroleum products in its draft Pakistan Oil Refining and Marketing Policy 2019.

Petroleum Division is working on the new policy under which some changes are being proposed in arrangements for the refineries and it is anticipated that it would be presented before the federal cabinet for approval in the current financial year, sources said.

A copy of draft available with Business Recorder states that import parity price formula in case of MS and HSD may also include Ocean losses plus weighted average of actual tender premium, freight and incidentals of Pakistan State Oil's cargoes from the last importing period of the prevailing prices mechanism.

The relevant foreign exchange currency rate on import parity price (IPP) shall be applied so as to fully recover all the actual cost incurred on the import of crude oil and petroleum products by importing refineries and oil marketing companies including all duties and import incidental expenses. Any gains or losses including losses due to delay in State Bank of Pakistan's (SBP) approval to OMCs/refineries because of in month movement of the foreign exchange rate shall be adjusted in the following period's price.

To offset time lag of petroleum products and crude oil prices, especially some local crude oil fields invoiced on weekly basis, determination of petroleum product prices shall move to fortnightly basis in a phased manner in consultation with stakeholders. Subject to applicable regulations of SBP and fulfilling all codal formalities, refineries shall be allowed to open and maintain foreign currency account and retain export proceeds in foreign currency to meet operational or emergency requirements.

The pricing of RON 95/97 may attract same duties and taxes as applicable for RON 92.

The current deemed duty of 7.5 percent on HSD may discontinue and instead refinery margins may be introduced on the basis of 50 percent OMCs' margin on MS and HSD being working out on CPI on annual basis.

At present, the oil refineries are collecting deemed duty on the sale of high-speed diesel (HSD) to consumers. The duty was introduced in 2002 when the refineries were asked to upgrade their plants by utilizing the collection. However, the refineries are still unable to compete with counterparts around the world.