Petrol may drop Rs15 a litre as refineries take the burden

Petrol could be up to Rs15 a litre cheaper under a revised pricing formula that moves part of the cost of imported fuel from consumers to local refineries, Federal Minister for Petroleum Ali Pervaiz Malik said at a press conference in Islamabad on Monday.

Malik, who appeared with Information Minister Attaullah Tarar, said the Petroleum Division had revised the way petrol is priced and had directed refineries to work under the formula cleared by the federal cabinet. The import price will now be set on the actual landed cost of the Pakistan State Oil cargo, using the premium on the last cargo, incidental charges and customs duty. The difference between the import price and the ex-refinery price is to be paid as petroleum levy, and refineries must submit daily petrol sales reports for checking.

Malik said a Rs15 per litre increase was due on Friday, 30 October, and was held back. "The refineries cooperated and we were able to stop it," he said. "The refineries will carry a burden of Rs15 billion for one month, which lets us cut the petrol price by Rs15." Tarar said Prime Minister Shehbaz Sharif issued a "strict" instruction that day that the load would not go to the public.

Refineries have objected to the change. They say the policy was announced without prior consultation and leaves them selling petrol below production cost. Malik said he would sit with them on Tuesday to hear their reservations, but insisted that "the refineries earned in three months a profit they had not earned before".

The profits are documented. Attock Refinery's net profit for July to September rose from Rs1.45 billion to Rs18.65 billion, up about 1,184 per cent. National Refinery went from Rs1.03 billion to Rs11.57 billion, up 1,029 per cent. Pakistan Refinery Limited went from Rs1.02 billion to Rs13.97 billion, up 1,274 per cent.

Analysts expect the sector to absorb real losses. Topline Securities said local refineries supply about 30 per cent of the country's petrol and face an effective burden of about Rs49 per litre, or Rs10 billion to Rs15 billion a month. AKD Securities put the sector's load at Rs16.4 billion, with Attock Refinery carrying Rs2.2 billion. Sherman Securities said margins will fall and some refineries may borrow to meet payments to the government.

Afia Malik, a petroleum researcher at the Pakistan Institute of Development Economics, told BBC Urdu the relief should have come from cutting the petroleum levy instead. "This money goes to the government. If relief was to be given, a cut was needed there," she said. Energy journalist Ali Khokhar said refineries were not consulted and questioned why the levy was not reduced, asking, "They have put Rs80 of levy on such high petrol and diesel prices."

Tarar said the fuel subsidy scheme, covering motorcycles, Chingchi rickshaws and small cars, had reached more than 15 million people and delivered Rs27 billion in relief. Malik said the Rs600 LPG price was unjustified and that action would be taken, and that the ship attacked in the region was carrying LNG rather than LPG.