ISLAMABAD: The Oil Companies Advisory Council (OCAC) has expressed deep concern over the government’s recent decision to reduce the diesel price, and issue a press release instead of addressing the industry’s concerns through a meeting.
In a strongly worded letter dated July 19, 2023 and titled ‘Forced Reduction in HSD Price at The Cost of Industry’, the OCAC — an association of oil marketing companies and refineries — highlighted the industry’s dissatisfaction with the Oil & Gas Regulatory Authority’s (OGRA) approach.
According to OCAC, the essence of the Economic Coordination Committee’s (ECC) decision on July 28, 2020, was to ensure accurate recovery for inventory acquired. According to the pricing mechanism approved by ECC, if the Pakistan State Oil (PSO) does not import any fuel during a fortnight, premium and other incidentals for the previous fortnight have to be applied. If PSO does import, then its premiums and incidentals are used as industry benchmarks.
The government had reduced the price of high-speed diesel (HSD) by Rs 7 per litre on July 15, 2023. In a previous letter, the OCAC claimed that even though PSO did not import any fuel during the first fortnight of July, OGRA “arbitrarily revised” the premium to $ 4.2 per barrel when it should have been $ 11.5 per barrel, according to the pricing mechanism.
However, in separate press releases issued on Tuesday, the Petroleum Division and OGRA said the oil industry’s claims were “baseless and unacceptable” and the price reduction was done in accordance with the ECC decision.
In its latest letter issued in response to those press releases, the OCAC disputed OGRA’s claim that the ECC decision was faithfully implemented. The industry contended that OGRA’s application of the new high-speed diesel premium has inflicted substantial and unjustified losses upon them.
The letter further accused OGRA of disregarding the adverse impact on the industry and suggested that the regulator’s actions are aimed at reducing prices at the expense of the industry. OCAC provided specific instances where adjustments were made that deviated from the pricing formula, resulting in detrimental effects for the oil industry. These instances include unjust adjustments to avoid price increases and changes in the use of exchange rates in pricing computations.
The industry warned that these changes, without taking into account the actual import of HSD at the reduced premium, have the potential to cripple the industry and jeopardise the availability of HSD in the country. To address these concerns, OCAC called for an urgent meeting with industry representatives to conduct a thorough assessment of the situation based on factual evidence, with the objective of mitigating any potential future impacts on pricing and achieve a mutually agreeable resolution.
The OCAC’s letter sheds light on the industry’s mounting concerns and underscores the need for OGRA to take immediate action to address these issues in a fair and equitable manner for both the industry and consumers. The industry’s urgent request for a meeting aims to foster an open dialogue between the industry and the regulator, in hopes of finding a resolution that safeguards the interests of all stakeholders.
As the oil industry raises alarm bells, the fate of the HSD price reduction and its consequences for the industry remain uncertain. The coming days will likely witness intensified discussions between OCAC and OGRA to find a way forward and ensure a balanced approach to the pricing mechanism in the oil sector.
