The off-depot oil pricing system will remain regulated for now
KARACHI: Regulations are unlikely to be lifted from the Inland Freight Equalization Margin (IFEM) in the first phase of the government’s oil sector deregulation drive, as it risks excessively raising oil prices in remote areas of Pakistan, The News learned on Friday.
The IFEM is an integral part of the ex-deposit price structure of regulated petroleum products, which allows prices to remain at par throughout the country.
This mechanism is used to keep prices equalized at depots across the country, regardless of the distance and mode of transport used and the applicable transport cost.
Sources quoting the chairman of the Petroleum and Gas Regulatory Authority (OGRA) said that IFEM would not be deregulated in the first phase, during which ex-refinery prices of petroleum products and the prices of their imports by OMCs (petroleum marketing companies) would be deregulated.
“Government cannot afford to deregulate IFEM as it would massively drive up the price of diesel and gasoline in remote areas of Gilgit-Baltistan, Azad Jammu & Kashmir, tribal areas and some parts of Balochistan,” a source said.
“There are eight freight zones and if IFEM is deregulated, the price of diesel and petrol could rise by Rs 16 per liter based on the price level existing in the remote parts of the country. compared to others.”
A federal government with a narrow majority could not afford to draw any fire from elected representatives in remote constituencies, because deregulation would raise oil prices in those areas higher than their rates in major cities and places near depots. .
After deciding to deregulate the oil sector, the government asked the OGRA (Oil & Gas Regulatory Authority) to define the terms in consultation with oil refineries and marketing companies. OGRA held its first consultative meeting with stakeholders in the petroleum sector on Tuesday to solicit their input. It will hold another meeting on September 12.
Topline Securities, in a research report, said it had been considered several times before, but no progress had been made due to political pressure and the risk of rising petroleum product prices.
“Given that there are many complexities involved, it is likely that the government will opt for phased deregulation this time around, where a single component of the price of gasoline such as the WTO margin or the ‘IFEM is deregulated, then it is finally completely deregulated,’ the report said.
Currently, gasoline, diesel, kerosene and light diesel are regulated, while high octane gasoline (high quality gasoline) and heating oil are deregulated.
“If the government implements this policy of deregulation, CMOs would be free to set their own prices on a competitive basis instead of pursuing fixed margins or ex-refinery prices set by the government. That said, oil prices would differ based on an area’s distance from the port or refinery and based on the import price per OMC.
The report also pointed out that this would be in contrast to the existing mechanism, where prices were uniform across the country through the use of the IFEM. “Currently, OMCs and dealer margins are also fixed in terms of rupees for one year by the government, which will be in the hands of OMCs to decide after deregulation, in our view,” the Topline report added.