Local Oil Market Developments

Regulating the Deregulated

The last month of June came as a blessing for the oil refining sector, if a blessing is what you call it. The Ministry of Petroleum & Natural Resources finally gave in to the hue and cry of the refining sector and finally provided them some relief in terms of deregulating the ex-refinery prices of the products at par with the import price of Pakistan State Oil, thus removing the loss making factor in the prices. Although this does considerable improvement to the account books of the refineries it came with a price. Compliance with international standards of HSD, which requires most of the refineries to undergo major projects and that too came with a deadline. Holding on to this fine string of relief in the wake of the circular debt, negative margins and a constantly changing international oil market this did provide a ray of hope which had been missing since the great recession of 2008. But the question is what if another 2008 like situation arises and the refineries have to go through the same situation with margins slipping and the pricing locked with the import price. Though they call it deregulation, it is more of a regulated scenario with the appearance of the other. But at this time and age with geopolitical situations, volatile financial markets and many other factors driving the oil market, something is very much better than nothing. Refining capacities in the country had been very much below their design capabilities due to the losses which required more imports into the country. But the constantly rising prices also resulted in a constant decline of domestic oil consumption which saw a 3.1 percent decrease in the outgoing fiscal year to 19.6 million tons against the 20.3 million tons during the corresponding fiscal year. But the question still remains; how long will the Government stick to this scenario? Will it let the sector develop under this newly acquired vision or do what they have always doneit remains to be seen. Asad Ali Khan