The government may replace the current method for calculation of penalty for motor spirit in the ex-refinery pricing formula with the World Bank proposed formula which would result in Rs 1.24 per litre reduction in ex-refinery price. Sources told Business Recorder that the subcommittee of Economic Co-ordination Committee (ECC) of the Cabinet, headed by Advisor to Prime Minister on Petroleum and Natural Resources Dr Asim Hussain has developed consensus on it.
The subcommittee is working on the proposals for new refinery policy, to be submitted to ECC for approval. The subcommittee has also told the oil refineries to reduce the sulphur content in petroleum products by 2012. They would not be allowed to operate in Pakistan if they failed to reduce the sulphur content by 2012, sources said.
The subcommittee has not made final recommendations on the proposed increase in deemed duty from 7.5 percent to 10 percent, and working is still underway, sources added. The subcommittee has sought working paper on the proposed increase of deemed duty for oil refineries. The subcommittee has reached consensus that the existing unitary method for calculation of RON Penalty for MS 87 RON should be replaced with the formula proposed by the World Bank.
World Bank formula is "the price differential of Singapore MS 95 & 92 published prices in Platts Oilgram will be divided by 3 to arrive at unit RON rate and then multiplied by 8 ie (price of MS 95 - price of MS 92/ 3*8". According to sources, the penalty worked out above will be subtracted from Arab/Gulf MS 95 published price to arrive at fob price of MS 87 RON.
The other elements of existing formula for determination of ex-refinery price of MS 87 RON will remain unchanged. Based on current prices, the ex-refinery price of MS 87 RON will be reduced by Rs 1.24 per litre. However, based on prices in international market, the impact can be both ways.
According to working based on $55.540 per barrel fob price of MS 95 RON, in new proposed formula the ex-refinery price is calculated at 25.50 per litre as compared to Rs 26.75 per litre according to existing formula that is less by Rs 1.24 per litre. The subcommittee was formed by ECC in its meeting held on April 13 after finding some complexities on some issues in the summary tabled by Petroleum Ministry.
Petroleum Ministry had proposed to ECC to enhance customs/deemed duty on high speed diesel (HSD) from existing 7.5 percent to 10 percent placing a cap at $80 per barrel price of Arab light crude oil to avoid windfall profits to refineries in case of increase in POL prices in international market.
It was also proposed that the customs/deemed duty would be reviewed after 3 years and according to calculations after the proposed increase in customs/deemed duty the impact was estimated at Rs 0.62 per litre on HSD price taking into account current prices.