Lead

The Pakistani government has assured oil marketing companies and refineries that the weekly petroleum pricing mechanism will remain in place, with upcoming price adjustments based on actual import premiums. The assurance came during a meeting chaired by Petroleum Minister Ali Pervaiz Malik and attended by Secretary Hamed Yaqoob Shaikh and CEOs of major oil companies, as reported by Dawn.

Meanwhile, the oil industry has formally protested against a record 18-20 per cent cut in petroleum prices announced by the prime minister last week, alleging the decision was unilateral and inconsistent with established processes. The industry estimates the price cut has caused losses of around Rs105 billion to refineries and oil marketing companies (OMCs).

Coverage Comparison

Dawn's reporting presents two distinct aspects of the story. One report emphasizes the industry's protest, detailing the estimated losses and warnings of bankruptcy. It quotes an industry executive who describes a pattern of shifting pricing mechanisms that has consistently disadvantaged the sector. The other report focuses on the government's response, highlighting the Petroleum Division's assurance of import premium-based pricing and the decision to retain the weekly mechanism.

Both reports agree on the core facts: the price cut was significant (18-20 per cent), the industry faces substantial losses, and the government has responded with assurances of stability and premium-based pricing. However, they frame the situation differently. The protest-focused report is critical of the government's approach, using terms like 'unilateral' and 'inconsistent,' while the response-focused report is more informative, presenting the government's side without heavy editorializing.

Key Claims

  • The oil industry, represented by the Oil Companies Advisory Council (OCAC), has written a protest letter to the government and requested an urgent meeting with all CEOs. The industry alleges that the federal cabinet approved the pricing mechanism four times in less than three months, each time changing the 'goalposts' to the industry's disadvantage.
  • The government initially used a 15-day average for pricing when prices were rising, then switched to a weekly average as prices, import premiums, and war risk surcharges surged, and later moved to crude-based pricing instead of product imports. In the latest decision, the government used average premiums of three months, while the actual benchmark of Pakistan State Oil (PSO) was not available.
  • An industry executive gave an example: the ex-refinery price for diesel should have dropped by Rs30 per litre on June 19 under the prevailing formula but was reduced by Rs81 per litre under a cabinet decision taken through circulation, without debate or discussion.
  • PSO alone is expected to suffer losses of about Rs50 billion after the latest price adjustment.
  • Several OMCs could face bankruptcy, with the country already short of A-class companies following the exit of Shell, Total, and Chevron. The industry warns that continued policy instability could trigger investor withdrawal and threaten long-term market viability.
  • The Petroleum Division has assured that upcoming petrol pricing will be based on a $15.85 per barrel import premium of the latest cargo arranged by PSO, and diesel pricing will continue to be benchmarked on PSO's import premium from Kuwait Petroleum, around $5-6 per barrel.
  • The Oil and Gas Regulatory Authority (Ogra) had been withholding over Rs66 billion in price differential claims arising from government decisions rather than operational issues, according to industry sources.

Perspectives

Industry Perspective

The oil industry, led by OCAC and executives from various companies, argues that the government's frequent changes to the pricing formula have shattered the industry and wiped out a year's profitability in a single day. They warn that such instability discourages foreign investment and could lead to bankruptcies.

Government Perspective

The Petroleum Division, through the minister and secretary, maintains that the weekly pricing mechanism will continue and assures that upcoming adjustments will be based on actual import premiums. They argue that this approach will minimize losses and provide stability.

Refinery-Specific Concerns

Cynergico Petroleum's Amir Abbassciy highlighted that refineries are particularly affected due to the abundant availability of smuggled high-speed diesel in the market, and demanded complete deregulation of pricing along with effective action against smuggling.

Foreign Investor Concerns

Wafi Energy CEO Zubair Shaikh said his UAE-based principals were shocked to learn that the pricing formula had been changed so frequently, raising doubts about the sector's stability for foreign investors.