Adil Khattak, CEO of Attock Refinery Limited and Attock Gen Limited, has recommended a gradual approach to deregulating petroleum prices.
In an interview, Khattak, who has been with The Attock Oil Group for 47 years, outlined his phased strategy for deregulation. He suggested that the first phase should focus on identifying malpractices through annual audits.
In the second phase, he proposed the removal of the Inland Freight Equalization Margin (IFEM) from the pricing structure to address issues related to tax refunds, counterfeit products, and dumping. The IFEM, a pooling mechanism introduced in 2001 to maintain uniform petroleum product prices nationwide, has become a controversial topic within the industry due to its political implications. Discussions about deregulating IFEM have resurfaced periodically, according to Khattak.
Khattak highlighted that deregulating IFEM could lead to significant price differences between cities and among oil companies, with consumers near ports and refineries benefiting from lower prices while those farther away would face higher costs.
He noted that over the years, the industry has faced manipulation and misuse of the freight pool mechanism, including the introduction of low-quality smuggled products, providing additional discounts to retailers due to the availability of cheaper smuggled products, and illegal dumping and extra deliveries to other OMC stations or unauthorized storage facilities.
Khattak also expressed concerns about the impact of deregulating petroleum prices on refineries. He explained that the pricing structure of petroleum products like Motor Gasoline (MG) and High-Speed Diesel (HSD) includes six components: Ex-Refinery price, Petroleum Levy & Sales Tax, IFEM, Distribution Margin (OMCs), and Dealer Margin.
While Khattak acknowledged that a 10% customs duty on petrol and diesel might be acceptable, he emphasized the need to prevent dumping. According to the Petroleum Rules, oil marketing companies (OMCs) are required to procure from local sources first and only import quantities that are insufficient to meet demand. This safeguard is essential to protect the local industry from unfair competition and ensure its sustainability.
The government has been considering the deregulation of fuel prices for several years, with an initial target date of November 1, 2022. However, the plan was delayed due to widespread opposition and concerns about its potential negative impact on consumers, particularly the most vulnerable.
In June, the Oil Marketing Association of Pakistan (OMAP) reached out to the Special Investment Facilitation Council Secretariat (SIFC) to address the challenges faced by OMCs due to disruptions in cash flows caused by delays in the IFEM audit, which have spanned over eight years. These delays have resulted in significantly higher mark-up costs on the trapped funds, affecting the entire industry.
