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July 1, 2020

Oil crisis warrants probe into likely govt-hoarders nexus

Business

July 1, 2020

LAHORE: Government’s decisions that led to an unprecedented seesaw in domestic prices of petroleum products in a month and fuel shortage baffled all and sundry, warranting an investigation into administration’s courtship with oil businesses, traders and analysts said.

Independent economist Farrukh Saleem accused the government of facilitating oil marketing companies (OMCs) in minting Rs300 billion out of people’s pocket with a sudden significant increase in prices of petroleum, oil and lubricant (POL) products.

“Recent upward revision of POL prices was aimed at providing financial benefit to oil marketing companies,” Saleem said.

However, Adviser to the Prime Minister on Petroleum Nadeem Babar dispelled the impression that the government facilitated OMCs to make billions by jacking up prices.

“In fact, oil marketing companies will lose a few rupees per litre all through July,” Babar told The News.

“Price revision of POL products had been in line with trend in international crude oil market,” he said, citing a chart mentioning gradual decrease and increase in crude price in the international market. The PSO purchases, which form the basis of cabinet decision of 2011, are based on this with a 30-day lag for purchasing cycle.

Babar further said the government was left with no option but to increase price before scheduled revision date “as it would have been 32 rupees higher if we had waited by the end of month”.

Government jacked up gasoline prices by Rs25 in one go after reducing prices in the past – a decision that was devoid of logic for many market observers.

“I have failed to understand logic behind the government first pushing petroleum product prices that led to closure of filling stations almost all over the country with no supplies from oil marketing companies and later abruptly revising rates upward,” said Ghiyas Paracha, a central leader of All Pakistan Petroleum Retailers Association. “This raised critical questions over how energy supplies are handled, but unfortunately nobody wants to listen.”

Paracha said dealers demand transparent inquiry into nationwide petroleum crisis following delayed imports of petrol and other products.

“Oil companies except state-owned Pakistan State Oil (PSO) had not been able to timely import petroleum products coupled with low fuel stocks which resulted in the scarcity of petrol, diesel, and other products.”

PSO’s ex-manager said the government had first made a political decision to cut oil prices without proper planning.

“But, the decision to provide relief to masses virtually backfired as it was not taken while keeping ground realities in mind,” he said, requesting to be quoted unnamed.

PSO’s former executive said cabinet committee on energy and cabinet had endorsed the decisions to stop imports and reduce refinery production “without understanding that it takes 6-8 weeks to import fuel”.

“The inexperienced team of ministry of energy made decisions on ad-hoc basis,” he added. “Oil and Gas Regulatory Authority keeps busy in allowing new OMCs, but it has not been able monitor their role, especially OMCs’ role in not maintaining stocks and dealers for holding back stocks.”

An energy expert also hinted about possible smuggling of fuel to Afghanistan and India due to very low prices in Pakistan when compared with rates in the region.

“Border agencies need to make stringent action against smuggling to India and Afghanistan,” said the expert. “I doubt there was such a large smuggling to India and Afghanistan but this aspect needs to be looked into.”

The energy expert said the world went through the same crude price shock that was managed with no shortage.

“There was neither shortage in Pakistan in real sense,” he continued, “as supplies were available at the pumps after price increase and that means dealers and OMCs were involved in manipulation.”

Planning and decision making lacks depth and knowledge, the expert said. “Our policymakers tilt towards refinery and OMC lobbies, while poor enforcement by the regulator is another problematic area,” he added. “Competition Commission of Pakistan and the Federal Board of Revenue should look into monthly accounts of involved entities, especially for the period of last three months including June. The penalty in this connection should be to the extent based on last 3/6 month market share.”