In the backdrop of mounting pressure from the oil industry and public discontent over skyrocketing fuel prices, the Pakistani government is fast-tracking the deregulation of petroleum product prices. This move aims to shift the burden of criticism onto oil marketing companies (OMCs) while addressing concerns over the influx of smuggled oil products.
The petroleum division has issued a directive to the Oil and Gas Regulatory Authority (OGRA) mandating the submission of a presentation within three days. This presentation will analyse the implications of deregulating petroleum products, focussing on aspects such as in-country freight equalisation margins (IFEM) and related factors.
The directive follows urgent instructions from the Prime Minister’s Office to finalise a deregulation framework for the petroleum sector, according to a senior government official.
Despite facing public backlash over rising fuel prices, the government’s hands are tied due to fixed tax rates dictated by donors under the existing pricing mechanism. Currently, the government’s role is confined to announcing bi-weekly fuel prices determined by OGRA, reflecting changes in the international market and exchange rates.
Meanwhile, the oil industry has criticised the government’s inaction in curbing the rampant smuggling of low-quality and cheaper products, particularly from the neighbouring Iran. This smuggling not only undermines the market share and profitability of regulated oil companies but also results in an annual revenue loss exceeding Rs230 billion for the government.
Furthermore, the industry has cautioned the government about the challenges of upgrading infrastructure to accommodate Euro-5 quality fuels while competing with freely available smuggled fuels of inferior quality across the country.
The government’s push for deregulation signifies a significant policy shift aimed at addressing both public grievances and industry concerns, albeit with potential challenges ahead in implementation and regulation.