OCAC BECOMING FORMIDABLE

'People have been falling prey to oil price bungling since late 1999

By Ashraf Khan
Sep 05 - 11, 2005

Much feared oil price hike took over the consumer on September 1 as Oil Companies Advisory Committee, whose main constituents are oil-marketing companies, deemed it fit to raise domestic prices up by seven to nine percent.

The rise came in with the exorbitant increase in international oil prices. World oil prices dipped September 2 but remained in reach of 70 dollars amid supply concerns fuelled by a shortage of refinery capacity in the wake of Hurricane Katrina.

While untamed prices at international markets give a good pretext to the policy maker to adjust home price in conformity with them, they also allows manipulators to make hay of the ongoing trend. Heedless woes of common, commercial and industrial consumers are continual and people have been falling prey to oil price bungling since late 1999.

Actually, it looks quite a funny situation that all the stake holders including the governments, the economies and above all the consumers are looking frightfully at the unrealistic oil prices which are disturbing budgets at all levels whether it's a budget of a house wife or the government, the only beneficiary of the rocketing oil prices are the oil marketing companies declaring huge profits in the recently announced half yearly results.

The profit taking spree was not confined to the private sector oil marketing companies but in a way the public sector PSO seems one step ahead in making the hay under the shining sun.

One wonders as to what happened to the pending references/complaints in National Accountability Bureau (NAB), where a detailed account of oil price bungling is lying awaited for a just decision and remedial measures.

The specific charges address several exploitative practices. Artificial raise in commission of oil marketing companies (OMC), for instance, is a factor casting unbearable burden on the consumer. A deep analysis suggests that previously the ministry of petroleum and natural resources controlled the prices of petroleum products. But on December 12, 2000, the government deregulated the product prices and designated OCAC as a regulatory authority. Profit margins of the OMCs, under the old mechanism, were calculated on the accumulated ex-refinery prices in addition to customs/excise duty. But later on the distribution margin and dealers commission was determined from accumulated prices of ex-refinery price plus customs/excise duty as well as development surcharge. After adding development surcharge the OMCs distribution margin and dealers commission have been increased exorbitantly and the difference in price has been collected from the people.

Secondly, in order to protect the refineries a concept of import parity has been implemented, as it was practiced through out the world. The purpose of the formula was that the prices of petroleum products at home should not be cheaper or dearer as compared to the prices of petroleum products in the Middle East. Platts Oil Gram price report has been taken as benchmark to be followed, which provides international recognition and standard. Since Platts did not quote Arab Gulf Gasoline prices prior to year 2000 therefore a formula was developed based on Naphtha price plus price differential of Caltex Bahrain up to the maximum of 60 dollars per metric tone. Here it may be noted that Naphtha is a product, which is not as refined as gasoline. Since January 2002 Platts started quoting 95 Ron gasoline price. Therefore the price of gasoline produced in Pakistani refineries must have been decided on the basis of gasoline price quoted in the Middle East and there was no need of following old system of allocation of price on the basis of price of Naphtha plus price deferential of Caltex Bahrain.

Insiders said that by not adopting the gasoline prices as quoted by Platts the general public was forced to purchase it at higher rates.

How the smartly developed formulae are benefiting the refineries could be checked with the fact that earning per share of the refineries in Pakistan has risen at mind-boggling levels. EPS of Pakistani refinery has jumped to Rs. 68 from Rs. 4 only in five years. Likewise, the earning of National Refinery has also followed the same course as it rose to Rs. 44 from Rs. 4 EPS in the same period.

Some products were also ratified as 'premium' and the rating was being also exploited.

Platts' rates high-speed diesel (HSD) as a premium product when it carries 0.5 percent sulfur contents. OMCs had started importing HSD with 0.5 percent sulfur since 2003. On the other hand refineries produced HSD carrying one- percent sulfur while still claiming 2.09 dollar per barrel as premium that comes to around 15.78 dollar per ton.

Likewise exaggerated increases were also being made in furnace oil prices. Furnace oil prices jack up was so much that a former chairman of Wapda took this matter to ECC and started importing its own furnace oil.

The World Bank has also indicated irregularities in its report on Pakistan Oil and Gas Sector. It stated that import parity prices needed to be made fully transparent and these should be posted every fortnight on the ministry of petroleum/ or OCAC website which has not been done so far.