Energy plays a pivotal role in any nation's economic development and there are many different sources of it, including natural gas, solar electricity, nuclear power, biomass and biofuels, wind energy, water and geo-thermal. These energy sources are crucial for accelerating the nation's social and economic growth. As they bolster domestic transportation, businesses, and households. Oil products have grown to be a significant part of the whole energy encyclopedia and have an entrance to the lowest end of the market. In foreign countries, the downstream oil marketplace is open and provides free access to every organization or independent players this lead to deregulation of oil market. ‘Deregulation’ is the elimination of the control of the government from a sector or a particular industry and to allow them to do a free trade in an efficient marketplace. Deregulating the oil market would mean that there would be no support from the government in the form of Inland Freight Equalization Margin (IFEM). The cost of inland movement borne by a refinery for the transport of crude oil from the source to the refinery is known as the Inland Freight Equalization Margin (IEFM). As a result of deregulation, there will be competition in the delivery of the services and this will result make capable the consumers making a wide range of choices in the quest for their satisfaction. For the understanding of the deregulation, one must first have to understand the regulation, as we know that there is no smoke without fire, so that is why there is no deregulation without the regulation. Regulation means any legal tool or legislation or any type of executive policy or an element of the constitution or the political socio-economic control by the government.
Traditionally, prices of petroleum products in Pakistan have been regulated by the government itself. So the Oil Marketing Companies (OMC’s) present in the country, namely, Pakistan State Oil (PSO), Shell Pakistan, Total, Be Energy and Has-col, have been selling their regular and premium petroleum products at similar prices throughout the country. This regulation in the oil industry has had its stumbling blocks – the greatest being financial uncertainty for OMC’s, since petroleum pricing is a popular political tool; we were used to seeing great price cuts near election time, and then instantaneous increase when political stability ameliorate. Whereas, the deregulation on premium petroleum products has been a meander for an industry going through a dead-heat. If the government goes ahead with deregulation it would have an uncooperative impact on the consumers. There will be a cynical reaction by the public by imposing this policy but it can be folded by public awareness. But if we look in the longer term, the costs of petroleum will rise right away post deregulation but will fall over time as new businesses enter the market and competition increases. After deregulation oil companies will charge pricing according to demand and supply forces, they can be guaranteed of a more stable financial outlook. This market-driven pricing will also encourage product differentiation, supply chain cost optimization, and superior forecourt services – all benefiting the end consumers. Ultimately, deregulation of petroleum prices will help the oil refineries to invest more and more in the oil industry and the oil marketing companies would also be able to expand their storage capacity and retail networks.
Deregulation can be at best in concept, an informed move by the government if done right and will provide businesses the chance to order and store petroleum goods at reasonable prices. Along with potentially lowering prices in some areas, it will increase the number of new jobs available to the occupants by encouraging foreign and domestic investment. Deregulation from the last decades has been implemented in the electric sector of Japan to encourage market competition, increase effectiveness, and reduce the electricity prices following the trend of worldwide deregulation. After that, the policies for deregulation were endorsed by the whole to bring economic reforms to efficiently activate the Japanese economy. Electricity deregulation is changing the market. After the complete deregulation of electricity in April 2016 then in 2017, the gas sector was also deregulated. As a result, oil, gas, and telecommunication sectors directly set foot into electricity retailing. Therefore severe competition and reorganization are probable to make active the electric industry. In opposition to deregulation in Pakistan, factors such as rising fuel prices, the hoarding of fuel, a loss of revenue for the government, as well as the political cost for the government play a huge role. These factors can have dignified implications towards deregulating the sector.
Deregulation is a pragmatic approach of the government, and it will create opportunities for the companies to order and stock fuel products economically. It will create not only bring down competitive prices but also create a lot of new job opportunities for the people. Government should provide a good policy structure, thus clearing the way for ease of doing business to get the positive impact of deregulation on Pakistan’s economy. The process of deregulation is a prolonged and a very time consuming exercise. It is important to consider the interests of a diverse set of stakeholders, especially those of customers and key players in the sector. Favoring one over the other can result in severe negative consequences for the government.
The writer is an economic analyst