The government has at long last approved transfer of oil price fixing powers from the Oil Companies Advisory Committee (OCAC) to the Oil and Gas Regulatory Authority (OGRA). The decision comes into effect from April 1. The regulator would have to fix prices of petroleum products in consultation with the Petroleum Ministry.
According to a Recorder Report, OGRA has also been authorised to take decisions on construction and operations of oil testing, storage (other than storage associated with refineries) and oil blending facilities.
Why the OCAC, comprising heads of nine oil companies, was allowed to fix prices of oil and petroleum products in the first place, particularly when the practice technically amounted to price-fixing by retailers, still needs to be fully explained by the government.
It is said that the government had given a specific formula to the OCAC according to which the latter carried out review of petroleum prices on a fortnightly basis, ostensibly to bring them at par with those prevailing in the international market. However, a downward movement in the international market hardly ever figured in OCAC's peculiar calculations.
It is also held in some quarters that as the government had prescribed parameters for oil price revisions, the OCAC in effect served as a front for the government to absorb the impact of negative fallout arising from each oil price rise.
The government had asked CIDA in October last year to conduct a study of the oil pricing mechanism, and suggest changes in it to make it acceptable to all the stakeholders. This has now been done, as evident from the federal cabinet's decision to transfer petroleum price fixing powers to OCAC.
Prices of oil and petroleum products have been hitherto revised on a fortnightly basis in the light of international market rates as a part of petroleum sector deregulation. As a rise in the prices of petroleum automatically causes an overall hike in prices of essential commodities of daily use, the result has been a sharp spurt in inflation in the country.
Interestingly, last year the World Bank had asked the government to assign the job of fixing petroleum prices to an independent body outside the oil ministry, and rationalise the whole mechanism which pointed to "the appearance of a collusion" between the government and the oil industry! The World Bank had also apprised the government that petroleum price setting by OCAC "would be considered illegal in many countries of the world."
Incidentally, fuel prices in Pakistan have registered an increase of over 500 percent since the early 1990s, and a major part of the profits made by the oil companies may well have been due to inventory gain because of galloping increase in oil prices.
In a petition filed in December last year, a consumer had demanded dissolution of OCAC and also the recovery of some five billion rupees allegedly accumulated by OCAC through oil price increases. The petition seemed to show that there was more to the operations of OCAC than met the eye. It is pertinent to mention here that the World Bank has been funding a $3 billion energy sector restructuring programme in Pakistan, and was keen to see oil and gas sector regulation transferred to OGRA.
The government's decision to transfer oil fixing powers from OCAC to OGRA is a good move that needs to be pursued to its logical conclusion, meaning that the compulsion on OGRA to act in consultation with the petroleum ministry be withdrawn in due course. OGRA is more likely to make efforts to bring a balance between the interests of utility companies, the government's penchant to milk this sector for revenue and the consumers.