The Oil Companies Advisory Committee has clarified the news item about "wrong" allegation made in the Senate and reported in newspapers on November 25, 2005.
The actual position is that the freight margin (IFEM) in petrol and HOBC was increased during the period August 16, 2005-March 31 2005 and at the same time the freight margin (IFEM) on diesel, kerosene and light diesel oil was removed, says a press release of OCAC.
This was done on the direction of GOP in order to hold the prices of diesel, kerosene, and light diesel oil at a lower level then, which would have been truly reflective of the international prices, it adds.
The cross subsidy in freight margin is also stated on the home page of the OCAC website (www.ocac.org.pk) under 'news'. The GoP in the larger interest of the consumer had taken this decision, otherwise the prices of diesel, kerosene and LDO would have been higher during the same period.
The cross subsidy from freight margin (CFEM) was removed in March 2005 and was shown separately from April 2005 under the head of 'Price Differential Claim' (PDC) and can be seen through the price build-up sheet of pricing available on the OCAC website. Part of the difference has been financed by the OMCs to whom the government still owes Rs 8.5 billion.
The freight pool was transferred to OCAC under Government of Pakistan deregulation policy in June 2001 under the freight pool working formula provide by the MoP&NR in February 2001.
Since then the oil industry has been calculating freight margin (IFEM) under the freight pool self-management system, which was duly approved by the MoP &NR and audited by external auditors of international repute and reports provided to the MoP&NR.
It is important to clarity that the freight charged by the oil industry under the head 'fright margin' (IFEM) is a cost borne by the industry to keep the prices equalised at 29 depot locations. The freight margin (IFEM) should not be misunderstood or construed as profit or margin allowable to the oil industry. The increase in freight margin is directly proportional to the increase in prices of diesel as 60 percent of the product movement of oil products takes place by road.-PR