The government has decided to allow a handout over the petroleum industry in order to determine the prices of petroleum products by implementing an deregulation mechanism as part of the new oil policy, which will be in effect from 1 November 2022.
Presently, the prices of petroleum products such as gasoline and diesel with high speed (HSD) are controlled, and the cost for furnace oils is not.
At a conference held this week, chief executives of refineries that produce oil, the Secretary of State for Petroleum Musadik Maklik, Energy Task Force Chairman Shahid Khaqan Abbasi as well as officials of Ogra Oil and Gas Regulatory Authority (Ogra) came to an agreement.
Sources have told The Express Tribune that all parties were of the view that both products manufactured locally by refineries, as well as those imports by Pakistan State Oil (PSO) will compete on the market locally.
In the present, PSO imports 50% of petroleum products . However, 50percent of the products are made locally by refineries that refine oil to meet the energy needs in the nation.
Sources have said there will be the possibility of competition among PSO and local refineries for oil in the country’s oil market.
Recently, the federal government accepted a plan to increase the margins of OMCs. The increase in margins is expected to be effective until November 1, 2022 (OMCs) that will take effect from November 1, 2022.
In the wake of the introduction of the new policy on refineries for oil The government will take away the margins for OMCs which includes PSO.
The government has also recently raised the dealer’s margins to Rs7 per litre . This will be in effect in the wake of the new refinery policy.
Under the new rules, marketplace forces determine profits of OMCs and refineries officials stated.
In the policy that was proposed, the government cut the tax on regulatory duties from 5 to 2.5 percent. This was later raised to 5% for imports of oil crude.
As per this agreement, government officials claimed the government was willing to lower the duty to zero under the new policy for oil refineries.
“If the government doesn’t remove the duty, this new policy on refineries will lose significance for refining industry,” a senior government official stated.
Officials claimed that the government has already raised the deemed duty on diesel and petrol to 10 percent. However, the entire sum went into the national budget.
The refineries and the former PTI government PTI were locked in a disagreement over the method of allowing additional revenue to refineries to upgrade their facilities.
The previous government was able to allocate 30percent of additional revenue to refineries to invest in facility upgrades.
But, certain ministers from Karachi were in conflict with a refinery in Karachi which obstructed the process of approving this process.
The government is now planning to let 30% of the funds generated by the additional revenue collected to be used for modernizing plants.
Local refineries require $4 to $5 billion in investment to upgrade their facilities. Byco refinery already begun working on upgrading its facilities.
Concerning the issue of monopoly in the oil industry, company officials have ruled out similar scenario. They stated that PSO was holding a 50 percent market share while the other 50% of the market was held by local refineries.
PSO is a government-owned business which means that the state is the sole authority over this company.
They also said that this new refinery policies would also benefit PSO which was struggling with financial difficulties and was at risk of being in default with international transactions.
The government recently granted Rs30 billion to save PSO from an liquidity crisis since its receivables exceed the threshold of Rs600 billion.
The new policy on oil refineries will allow PSO with the ability to set its own margins and be competitive with other refineries.
The officials from the oil industry stated that competition could lead to competitive prices for oil for consumers.