Govt says future fuel price adjustments will use actual import premiums, weekly formula to continue

The Petroleum Division has assured oil marketing companies and refineries that future petroleum price adjustments will be based on actual import premiums, while the current weekly pricing mechanism will continue for now.

As per media reports, the assurance was given during a meeting chaired by Federal Minister for Petroleum Ali Pervaiz Malik with representatives of the oil industry after the Oil Companies Advisory Council warned of mounting losses in the downstream petroleum sector.

The meeting followed an OCAC letter seeking government intervention over what it called an “imminent collapse” of the sector due to unilateral pricing decisions and financial pressures.

According to the OCAC, the latest petroleum price reduction under a revised mechanism exposed the industry to losses of around Rs104 billion. The council linked these losses to existing inventories of about 505,000 metric tonnes of motor spirit and 655,000 metric tonnes of high-speed diesel held by companies.

Officials told industry representatives that the fundamental petroleum pricing formula should not be changed frequently. They also said there would be no further change to the seven-day pricing mechanism in the near term.

Upcoming petrol pricing will be based on the $15.85 per barrel import premium of the latest cargo arranged by Pakistan State Oil. Diesel pricing will continue to be benchmarked against PSO’s import premium from Kuwait Petroleum, estimated at around $5 to $6 per barrel.

OCAC Chairman Asif Iqbal told the meeting that the pricing formula had been changed seven times for diesel and four times for petrol in the past three months, affecting the industry’s financial position.

Industry representatives said the latest price change had erased profits earned over the past year and raised concerns about future foreign investment in the sector.

They also raised concerns over more than Rs66 billion in pending price differential claims, saying the unpaid amounts were creating working capital pressures.

They said banks were also charging higher foreign exchange costs than State Bank of Pakistan rates.

The industry also objected to the reduction of deemed duty from 7.5% to 5% and its partial shift into the Inland Freight Equalisation Margin, saying the move would increase financial pressure on refineries.

Most participants called for restoration of the pre-war pricing mechanism, warning that the formula used in the June 19 pricing decision could affect profitability and working capital.

The petroleum minister said the prime minister had formed a committee on petroleum pricing and that industry input would be considered during the consultation process.

He said complete deregulation could not be implemented abruptly and would require a gradual shift, possibly from weekly to daily pricing.

The industry was also told to present its position more clearly before relevant government forums, including the National Coordination and Management Council.

The OCAC chairman said the Oil and Gas Regulatory Authority had given him a hearing on short notice, though the industry’s input was not reflected in the final decision-making.