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The federal government is considering introducing a daily petroleum pricing mechanism that would significantly reduce its direct role in determining fuel prices and shift pricing authority to the Oil and Gas Regulatory Authority (Ogra).
According to senior officials from the Petroleum Division, the proposed system would empower Ogra to determine the prices of petrol (Motor Spirit), High-Speed Diesel (HSD), Light Diesel Oil (LDO), and Kerosene Oil (KO) every night, with the revised prices becoming effective from 12:00 midnight.
At present, petroleum prices are revised weekly. Previously, they were adjusted on a fortnightly basis and, before that, once every month.
Under the proposed mechanism, the current process of circulating pricing summaries for approval would be abolished, effectively removing the roles of the Petroleum Division, Finance Division, and the Prime Minister in the final determination of petroleum prices.
Committee Reviewing New Pricing System
Prime Minister Shehbaz Sharif had constituted a committee to review a new petroleum pricing framework. The committee has so far held four meetings, with the latest session chaired by Petroleum Minister Ali Pervaiz Malik on July 13.
The meeting was attended by:
- Federal Minister for Economic Affairs Ahad Khan Cheema
- Minister of State for Finance Bilal Azhar Kayani
- Ogra Chairman Masroor Khan Nabeel Awan
- Representatives of KPMG
- Officials from the Finance Division
- Pakistan State Oil (PSO)
- Ministry of Law and Justice
- Petroleum Division
- Other senior government officials
KPMG Presents Four Pricing Models
KPMG, appointed by the Petroleum Division to evaluate future pricing options, presented four possible mechanisms:
- Monthly pricing
- Fortnightly pricing
- Weekly pricing
- Daily pricing
The consultancy highlighted the advantages and disadvantages of each model.
According to official sources, committee members have shown a preference for the daily pricing mechanism, although the proposed model is expected to be a hybrid system rather than complete deregulation.
Greater Role for Oil Marketing Companies
If approved, the new framework would allow Oil Marketing Companies (OMCs) to independently determine:
- Inland Freight Equalisation Margin (IFEM)
- OMC profit margins
- Dealers’ commissions
This would be similar to the existing pricing system for High Octane Blending Component (HOBC).
However, Ogra would continue to regulate the market by monitoring fuel inventories maintained by OMCs, ensuring compliance with mandatory storage requirements, and preventing hoarding.
Petroleum Price Stabilisation Fund Proposed
The proposal also includes the creation of a Petroleum Price Stabilisation Fund to protect consumers from sharp fluctuations in international oil prices.
Under the proposed framework, the government could maintain a retail price band of Rs275 to Rs325 per litre.
- If domestic fuel prices fall below Rs275 per litre, the savings would be deposited into the stabilisation fund.
- If prices rise above Rs325 per litre due to international market shocks, the accumulated funds would be used to subsidise prices and shield consumers from sudden increases.
Officials believe the proposed system would make petroleum pricing more transparent, responsive to international market movements, and capable of reducing the financial impact of extreme price volatility on consumers.
