Govt likely to allow 11% return to oil refineries
Aftab Ahmed
The government is likely to allow a guaranteed rate of 11 percent return for oil refineries in the new proposed refining policy.
At present, 7.5% deemed duty on High-Speed Diesel (HSD) (refinery margin) is also applicable for maintaining refinery profitability.
Officials said that oil refineries had suffered multi-billion rupees loss during the lockdowns following Covid-19 Pandemic.
So, the refineries had approached the government for bailout packages. The oil refineries of Pakistan claimed that they suffered a loss of Rs 31 billion during the Pandemic.
The Petroleum Division had formed a working group to consider the demands of the oil refineries. Therefore, the working group had discussed different proposals to review the pricing formula for the refineries.
The government had also considered one option to link an ex-refinery price with an import parity price.
https://newztodays.com/govt-directs-refineries-to-cancel-crude-imports/
Earlier, advisor to Prime Minister on petroleum Nadeem Babar had informed the media that the government wanted to link ex-refinery price with actual import parity.
However, he had added that the government would also give one year to upgrade products.
Under this mechanism, the government would open an escrow account. The refineries would deposit an additional amount in this account to upgrade the products. If they fail to upgrade the product, the amount would be transferred to the government.
The government had allowed refineries to charge deemed duty earlier. It had also decided to open an escrow account to deposit money to upgrade the products for oil refineries in Pakistan.
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However, refineries had never deposited the amount in an escrow account. They had claimed to suffer a loss. Therefore, refineries said that they had used the amount to adjust their losses.
Now, refineries and petroleum division were again mulling over the new pricing formula. Both sides had discussed allowing an 11 percent guaranteed return on the ex-refinery price to the refiners in a bid for smooth operations.
Current mechanism
The oil refineri3es set ex-refinery prices of petroleum products regularly on their own under the parameters. The economic Coordination Committee (ECC) had set these parameters from time to time.
According to parameters, petroleum products’ ex-refinery prices should not be more than the PSO’s average landed import price for the previous period announced monthly.
In case of no imports by PSO, refineries will fix the-ex-refinery price as per Import Parity Price (IPP) formula based on Arab Gulf monthly average FOB prices.
It also includes premium and Average Freight Rate Assessment (AFRA)] to arrive at the C&F price.
The demand for Petrol, HSD
Petrol and high-speed diesel (HSD) are major petroleum products that Pakistani consumers use.
Transport and agriculture sectors use high-speed diesel. Therefore, fluctuation in the prices of diesel also affects these two sectors.
The demand for petrol stood at 7, 60, 818 Metric tons in October. However, its actual sale remained at 609875 metric tons, which was 19.8 percent lower compared to projections.
Likewise, the oil industry had projected demand for high-speed diesel (HSD) at 7,14,908 metric tons. The actual consumption stood at 597570 metric tons that were lower by 16.40 percent compared to forecasts.
The oil industry is projecting demand for petrol at 716342 metric tons and HSD 704025 metric tons in November. The projections are on the higher side due to crop sowing season. The industry projects that demand would rise due to activity in the farming sector which will also boost rate of return of refineries.
