Deregulation to hit remote areas: Ogra

In Chitral, the price of HSD will go up by Rs2.88 and that of petrol by Rs1.5

ISLAMABAD: The Oil and Gas Regulatory Authority (Ogra) has expressed concern over proposed deregulation of inland road freight component of petroleum products saying this may lead to shortages in rural areas and widespread price variations across the country.

Ogra sources told Dawn that the government had been advised to look into the issues of product supplies to remote areas because the deregulation would be a disincentive for private marketing companies to ensure their presence across the country. This may fuel a competition among the companies which at times use unhealthy business practices to grab larger market shares in large cities.

Secondly, consumers in remote areas will be at a disadvantage in commercial activities because they will get petroleum products at prices higher than in large commercial centres.

The sources said the government should provide subsidy on petroleum products for remote areas or bind all marketing companies to supply products to such areas in accordance with their current market shares.

“Even though deregulation of road movement will contribute to curbing misuse of inland freight equalisation margin (IFEM), it will result in price variation throughout the country, which will be particularly steep in case of far-flung areas and Khyber Pakhtunkhwa. A stock maintenance issue may also arise,” the sources quoted Ogra as telling the Economic Coordination Committee (ECC) of the cabinet.

On PSO’s recommendation, the petroleum ministry has asked the ECC to partially abolish the IFEM on petroleum products which yields about Rs15 billion.

The move is likely to reduce diesel price in Karachi by about Rs2 per litre and increase it by Rs3 in Kashmir and Gilgit-Baltistan.

The margin is charged on high speed diesel (HSD), petrol, high octane blending component (HOBC), kerosene and light diesel oil (LDO) to maintain their uniform prices across the country.

The sources said the consumers would benefit from the deregulation only if the entire freight, including pipeline freight and guaranteed freight to a couple of refiners, was done away with and a portion of that made available to remote areas.

The petroleum ministry seeks to protect the IFEM for movement of HSD through pipeline because of a tariff guarantee provided to the White Oil Pipeline and a price differential guaranteed to the Pak-Arab Refinery (Parco) and partially to the Attock Refinery for its southern crude freight charges.

The ministry has contended that the freight charge was meant for equalisation of transportation cost and not as a source of profit for refineries and marketing companies.

According to the sources, the current mechanism was opaque and a couple of refineries and marketing companies were using it for making profit.

The average transportation cost of refined product at current prices is estimated at Rs1.2 per litre on high speed diesel. Of this, 64 paisa goes to the two refineries as carrying cost from well or port and the rest is shared by marketing companies for transporting the product from refineries to 12 depots.

Of the Rs15 billion annual freight margin, about Rs5.95 billion goes to Parco -- Rs3.7 billion on HSD and Rs2.26 billion on petrol.

Official calculations suggest that after abolition of the margin the price of HSD in Karachi will decrease by Rs1.84 per litre and of petrol by Rs3.22.

In Chitral, the price of HSD will go up by Rs2.88 and that of petrol by Rs1.5. Consumers in all big cities will benefit because the prices at nine of the 12 depots will decline by 17 paisa to Rs1.84 per litre for HSD and 72 paisa to Rs3.22 for petrol.

However, prices at two depots serving remote areas in Azad Kashmir, Chitral and Gilgit-Baltistan will increase and consumers will suffer if they are not subsidised directly on the basis of consumption volume and transportation cost.

The price of HSD at Juglot in Gilgit-Baltistan will increase by Rs2.14 and of petrol by 76 paisa. The diesel price in Quetta will increase by 21 paisa, but petrol price will decrease by 72 paisa.

The diesel prices will decrease by Rs1.14 per litre in Shikarpur, 73 paisa in Multan (Mehmoodkot), 17 paisa in Vehari, 37 paisa in Faisalabad, 38 paisa in Lahore (Machike), 66 paisa in Jhelum, Rs1.14 in Rawalpindi and Islamabad and 62 paisa in Peshawar (Tarujabba).

Petrol prices will decrease by Rs3.22 per litre in Karachi, Rs1.66 in Shikarpur, 72 paisa in Quetta, Rs2.11 in Multan, Rs1.55 in Vehari, Rs1.08 in Faisalabad, Rs1.64 in Lahore, Rs2.04 in Jhelum, Rs2.52 in Rawalpindi and Rs2 in Peshawar.

Petrol prices are likely to increase by Rs1.5 in Chitral and 76 paisa in Gilgit-Baltistan. . --(Khaleeq Kiani, 'Dawn', 10 May 2010).