Government Likely To Deregulate Petroleum Pricing Amid Shortage

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The recent petroleum shortage across the country has led to rising concerns, needed to be dealt in a swift manner. One way in which the government is likely to fix the situation is to end the uniform pricing mechanism. This essentially means that the government will deregulate pricing and marketing of petroleum products. This will lead to different fuel stations charging different prices for petroleum products. Prices may also differ from city to city nationwide.

It is also likely that the government will deregulate the inland freight equalization margin (IFEM) mechanism. The IFEM mechanism is being used by the government to keep prices of petroleum products at a uniform level throughout the country. After deregulation of the IFEM mechanism, people who are near refineries and ports will get petroleum goods at a cheaper rate than the rest of the country. According to estimates, the price difference will be in range of PKR 1 to PKR 5 per liter, depending on the cost of transportation.

Meanwhile, the government has accused Oil Marketing Companies (OMCs) of creating an artificial shortage to earn excessive profits. The OMCs are under fire for behaving like a cartel when it comes to the pricing of high octane blending component (HOBC). The price of HOBC is not regulated by the government and therefore, has not been reduced as compared to other petroleum products. Although there has been a massive decline in the prices of petroleum products internationally, the price of HOBC is still very high. Recently, the  Oil and Gas Regulatory Authority (OGRA) intimated OMCs in the country to mend their cartel-like behavior in the case of HOBC. Otherwise, the matter will be taken up to the Competition Commission of Pakistan (CCP), OGRA warned. The CCP will then look into the possibility of anti-competitive and collusive practices of OMCs.

After the deregulation of petrol, OGRA will not be able to do much besides intimating the OMCs to reduce prices. This means that it will be up to the OMCs to decide the prices of petroleum products much like HOBC right now. The Competition Commission of Pakistan (CCP) can play a key role in managing the price of petroleum products after the deregulation. It is also likely that Platts Oilgram’s average of last month will be used to determine the prices of petroleum products. Right now, the country is  using the cost of import incurred by PSO to determine the prices of petroleum products.

Stay tuned for more news-related content like this and drop your thoughts regarding the petroleum shortage in the country in the comments section below. Do you think deregulation will be a viable choice?



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