Refineries may reject proposed oil pricing formula

19 Jan, 2010

The oil refineries may jointly reject the proposed oil pricing formula devised by a committee on oil pricing, which suggests fixing foreign exchange value at Rs 83 per dollar to determine the ex-refinery price, Business Recorder learnt on Monday. Sources told Business Recorder that the new proposed formula would be presented before an expert committee on oil pricing, which is scheduled to meet on Tuesday (today).
Earlier, the committee presented a formula in a meeting held on January 12 that was jointly turned down by the refineries, saying that they would be facing losses. The new formula to be tabled on Tuesday in the committee''s meeting had been proposed by a member of the committee, former Managing Director (MD) Oil and Gas Development Company Limited (OGDCL), Razi-ud-Din.
Ministry of Petroleum had sought comments from oil refineries including Parco, ARL, PRL, NRL and Bosicor on the proposed formula, and majority of the refineries had opposed the formula, arguing that it will cause more losses to them. The proposed formula encompasses; (i) adaptation of American Petroleum Management System (APMS) standards for crude oil price instead of Gulf Market prices.(ii) removal of existing 7.5 percent deemed duty (iii) no responsibility on government regarding foreign exchange losses on crude oil import (iv) no recovery of financial charges from government.
Sources in oil refineries said the formula was not acceptable to them, as it would further their losses. They were of the view that refining industry was already under financial burden and the new proposed formula did not contain any bail out package for them.
The committee has also invited Oil Marketing Companies (OMCs) to attend the meeting and give input on the proposed de-regulation of Inland Freight Equalisation Margin (IFEM). Justice Bagwandas-led Judicial Commission had recommended controlled de-regulation of IFEM by replacing it with primary transportation charges to be built-in in ex-depot sale price.
Earlier, the committee on oil pricing headed by Petroleum Secretary has observed that de-regulation of IFEM would result in different prices of petroleum products across the country. According to the committee, the prices of petroleum products would be higher in North West Frontier Province (NWFP), Northern Areas (NA), Punjab and Balochistan than the prices effective in Karachi, Sindh. The committee has noted that the Attock Refinery Limited (ARL) would not be able to meet the up-country demand, saying that this is a policy issue which requires consensus of all provinces.
To minimise the impact of IFEM on prices of petroleum products, federal government has already reduced number of depots from 29 to 12 owned by Oil Marketing Companies (OMCs) with the concurrence of defence from strategic point of view for secured supply of petroleum products in case of emergency.
The IFEM is vigilantly controlled by Oil and Gas Regulatory Authority (Ogra). The concept of IFEM was introduced in 1966. It was one of the components of the final selling price of regulated petroleum products and represented the cost of transportation of fuel products from the source to depots.

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