The following is full text of the Interim report of Judicial Commission in CP Nos 33 & 34 of 2005. "1. In deference to the court order on my representation for extension of time in finalisation of the report and asking for an interim report by 12-5-2009, I lay down the following few lines:
"2. Before assigning the State function of fixation of prices of petroleum products to OCAC with effect from July 1, 2001, this function was performed by a Committee consisting of Secretary Petroleum, Secretary Finance & Managing Director Pakistan State Oil assisted by Director General (Oil) acting as its secretary. In December 1999, General Pervez Musharraf as Chief Executive of the Country while announcing the Deregulation Policy introduced a formula known as Rationalised Import Parity Prices of Petroleum products.
Accordingly, a summary dated 12-6-2001 was initiated by Petroleum Ministry, advising the Chief Executive to assign this function to a private association of Oil Companies and Oil Refineries. Consequently, a Petroleum product (Petroleum Development) Levy Ordinance 1961 was amended. This amendment was patently illegal and unconstitutional as article 90 of The Constitution of Pakistan contemplates that executive authority of Federation shall vest in the President and shall be exercised by him either directly or through officer's sub-ordinate to him.
Undisputedly Secretary General OCAC made responsible, as delegate of the President was neither subordinate to him nor performing functions in connection with affairs of the Federation.
"3. It may be pointed out that in the summary under reference, it was proposed that out of seven components of the fixed sale price, ex-Refinery price, Custom/ Excise duty, Distributors Margin, Dealers Commission, Inland Freight Equalisation Margin, Petroleum Development Surcharge/ Levy and GST, Central Excise Duty shall remain constant till any change was made by the Government. It was suggested that ex-Refinery price will be adjusted upwards/ downwards by the OCAC on fortnightly basis in consonance with international market price. It may be clarified the IFEM consists of two components ie freight cost of the OMCs and adjustment of ex-Refinery price, fixed by PARCO & Attock Oil Refinery. It was contemplated that freight cost of OMCs will change with upwards/ downwards revision in the cartage rate as per the fixed sale price for HSD whereas ex-Refinery price adjustment will fluctuate with the fortnightly revision of ex-Refinery price. Likewise Distributor's margin, Dealer's commission and GST will change with revision in the fixed sale price to the extent of defined percentage only of the respective items.
It was further proposed that instead of Kuwait Petroleum Company premiums in the original formula, Import Parity Prices will now be determined on the basis of weighted average rate and actual premium of the deficit product imported during the period in question. This arrangement was supposed to continue until the establishment of permanent Regulatory Authority but despite the establishment of OGRA on March 28, 2002 delicate function of price fixation mechanism was not transferred to OGRA. While approving the summary in hot haste, it was decided by the Cabinet that until the formation of Regulatory Authority, fixed sale prices announced by OCAC shall be monitored and regulated by DG (Oil) but there is nothing on the record whether the prices were actually monitored and regulated.
"4. When aforesaid CPs came up for hearing before the Court on 13-10-2005, the Attorney General for Pakistan was faced with a number of Constitutional issues with regard to constitutionality of the aforesaid delegation of authority. Realising inherent defect in the government stance he advised the Ministry to transfer this function to OGRA yet it took more than six months to notify OGRA as delegate of the Federation for fixation of Petroleum products price with effect from April 16, 2006.
"5. Annual consumption of Petroleum Products in the country as per estimates for 2008-09 will be about 18 million Metric Tons. Indigenous crude oil explored in the country will be around 17% of the total requirement while 83% of the requirement is met through imports of crude oil, refined HSD as well as Furnace oil. Local as well as imported crude oil, refined by PARCO, National Refinery Limited, Pakistan Refinery Limited, Attock Refinery Limited and Bosicor Pakistan Limited, caters for about 11.7 metric tons annually on 100% utilisation.
"6. Total consumption of HSD in the country is about 8 million tons every year of which about 50% is imported while 50% is locally produced. Local Refineries can only produce HSD containing 1% sulphur (inferior quality) while imported diesel contains 0.5% sulphur (superior quality). It is common knowledge that with effect from July 2001 Refineries in Pakistan have been charging the price of higher quality whereas they produce inferior quality diesel with 1% sulphur content which is otherwise banned throughout the world.
"7. Prior to the year, 2002 all the Refineries were guaranteed a minimum of 10% and maximum of 40% return on their paid up capital. This guaranteed return formula was abolished in 2002 under Deregulation policy. The new formula allowed the Refineries 10% deemed duty on HSD which is over and above the International market prices. This 10% deemed duty was allowed to keep the Refineries afloat in long term. Further more they were also directed to retain all profits in excess of 50% on their paid-up capital and transfer the same to Special Reserves in order to meet future losses (if any) and for expansion and up gradation of their capacity.
However, despite the availability of over Pak Rupees 15 billion in their Reserves, Refineries have hardly utilised this amount for up gradation of Refining units and improving the quality of product. This amount may be conveniently retrieved by Government of Pakistan and suitably appropriated for Social Welfare Schemes and Development Projects.
"8. The Government of Pakistan, despite making this industry a major source of revenue collection, has sometimes been endeavouring to relieve the masses against inflation in the oil prices in the world market. At times inflated fixed sale prices have been reduced by subsidising the sky rocketing oil prices. It is high time that the government seriously ponder over reducing the burden of PDL and uniform GST at the rate of 16%.
"9. Although final report is yet to be prepared, which may consume a great deal of time as many sensitive and technical issues are involved. It may however be safely observed as an interim measure that besides reduction in government duties and taxes, freight rates, Dollar-rupee parity source, the cost of refining, margins allowed to Distributors and Dealers commission need rationalisation and review in the larger public interest. It would therefore be open to the august Supreme Court of Pakistan to make appropriate directions for interim relief in the prices of Petroleum Products as well as Natural Gas, CNG and LPG, as deemed just, fair and proper."