Regularising POL Prices

The issue of POL price fixation was accentuated in the press during the last couple of weeks through various articles which appeared in the Statesman entitled “Irregularities in POL Price Fixation” and in the DAWN entitled “POL Price Fixation Mechanism” published on 26 July, 2005 and 1 August, 2005 respectively. The articles unveiled mal-functioning and illegal actions to the disadvantage of the public at large and the government on the part of the Oil Companies Advisory Committee (OCAC) in contravention of the Oil and Gas Regulatory Authority (OGRA) Ordinance No. XVII of 2002. The OCAC along with Oil Marketing Companies (OMC) has unduly been fixing arbitrary and spurious POL prices to its benefit, charging high prices from the consumers and prowling public money. 

The articles opened up a debate in the media on the issues pertaining to (i) illegal fixation of the POL prices by the OCAC despite the fact that in terms of the said ordinance it was the responsibility of the OGRA to fix the oil price, (ii) the arbitrary  basis of crude procurement origin for fixation of the POL prices, (iii) the World Bank report dated 10.07.2003 entitled “Pakistan oil and gas sector review”, and (iv) the observations of the Standing Committee of the Senate which took up an adjournment  motion and raised many issues on the subject.

The OCAC instead of rectifying the legal aberrations and distortions in the POL prices tried to defuse the mater by publishing a counter article which appeared in the Economic and Business Review pages of the DAWN dated August 8 – 14, 2005.

Based on the above mentioned articles a TV Channel also initiated a debate confronting the OCAC with the consumers and other interested parties. According to the reliable sources the Ministry of P&NR called for an emergent closed door meeting requiring OCAC to explain their position in this regard on 10^th August. The accentuation of the issue forced the OCAC to abstain from increasing the prices of the POL products which they have been doing arbitrarily without any checks and balances.

The intentions of the OCAC are even apparent from their own above mentioned article, which has probably been written in haste and panic. The article of the OCAC instead of giving a true picture to the nation has tried to confuse consumers by giving miss-leading and conflicting answers. The OCAC has although referred that it is the Economic Committee of the Cabinet (ECC) which has approved the formula for POL price fixation but has intentionally concealed the conditions attached to the decision which, inter alia, include (i) revitalizing and restructuring of refining sector and (ii) import regulatory duty on HSD, JP4, kerosene oil and LDO. Moreover the formula given by the OCAC is even irrational as the World Bank in its study conducted in July 2003 observed and recommended that “Since the OMC margin is a fixed percentage of maximum selling price, it acts as an incentive for higher prices. Consideration ought to be given to setting the dealer’s commission on a sliding scale (based on IPP). Ultimately the level of commission ought to be determined in the market place when sufficient competition exists.” 

The OCAC’s article further states that the prices would be in any case the same whether determined and fixed by the OCAC or by OGRA. In this regard it is to be noted that it is not for the OCAC to decide whether the prices fixed by it or the OGRA would be the same or not, on the contrary it is the law which should be upheld. Besides the Ordinance requires that the OCAC being direct beneficiary of the price hike cannot fix prices of the POL products and legally it is for the OGRA to fix prices. In the same article the OCAC has also negated and turned down the findings of the Senate’s Standing Committee for reasons best known to them.

According to the assessment of a financial organisation the accounts of one of the OMC (Pakistan State Oil Co. Ltd.) for the year 2002-03 revealed the following facts:

The issue of POL price fixation is of immense importance as it is not only a question of a group of people monetarily benefiting from the illegal and arbitrary price hike but it involves the grave issue of artificially inflated prices of diesel and furnace oil which in turn have not only increased the cost of production resulting in hyper inflation in the country but also rendered exportable uncompetitive in the international market.

The Supreme Court of Pakistan may like to take the cognizance of the entire matter and consider taking up a suo motu case to investigate whether (i) the continued POL price fixation by the OCAC, in the presence of the OGRA Ordinance, is valid under the law or not? (ii) what safeguard measures prescribed under the OGRA, are being taken to protect the public and the national security interest in terms of the Section 6(15) of the OGRA Ordinance? (iii) why the cases initiated by the National Accountability Bureau (NAB) against OMC officials have not yet been concluded? (iv) the adverse affects of the bogus and abnormally high POL prices on the cost of production of goods and its corresponding affect of hyper inflation within the country and non-competitiveness of Pakistani goods  in the international markets, and (v) recovery of public money looted by the beneficiaries of price hike.

The Supreme Court may also like to ensure the implementation of the OGRA Ordinance so that such mal-functions do not recur. The Chief Justice of Pakistan, Mr. Justice Iftikhar Muhammad Chaudhry during his speech, on an occasion, has passed on a message to the nation that he is for a corruption free society. A suo motu action by the Supreme Court on the POL price fixation will strengthen his stance on the fight against corruption. The correct fixation of POL prices will not only give some relief to the nation but also make our products competitive in international markets. The Supreme Court may also suggest and enforce measures which can ensure the availability of POL products at genuine and normal prices to the consumers.