The govt has been finding it difficult to offset more than Rs25bn losses reportedly faced by the refining industry and at the same time provide relief to consumers as desired by the Supreme Court. - File photo
According to sources, a committee of experts on oil pricing constituted by the government on the instructions of the apex court will meet again on Tuesday to examine a formula presented by an ‘independent expert’ and proposals by the refining industry to break a logjam over refining profits and revision of pricing mechanism for oil products.
The Supreme Court had fixed a deadline of Dec 30, 2009, for the committee to remove lacunae in the oil pricing formula, but later de-listed for an indefinite period the hearing of the case scheduled for Dec 31.
The head of the committee, Petroleum Secretary Mahmood Salim Mahmood, is set to retire early next month.
These sources said that Raziuddin, a former chief executive of the Attock Refinery, who had been engaged by the committee of experts to suggest amendments to the oil pricing formula, had presented a sliding scale of $1.5 to $5 per barrel refining fee proportionate to the paid up capital of refineries to ensure viable margins.
Mr Raziuddin was also co-opted by the Justice Bhagwandas Commission when it probed irregularities in the oil pricing system on the instructions of the apex court.
The recommendations, said the sources, were handed over to the refining industry for feedback. The industry rejected the proposals and said they did not provide financial room for profit.
It claimed that even if deregulated products like liquefied petroleum gas, lubes and bitumen were included in calculations, the formula presented by the independent expert would not end the losses.
These sources said that the committee had unanimously clarified at the outset that the formula would be based on efficient refining operations and competitiveness.
The government has been finding it difficult to offset more than Rs25 billion losses reportedly faced by the refining industry over the past four months because of furnace oil production and at the same time provide relief to consumers.
The sources said the refineries produced about 34-40 per cent of furnace oil from crude refining. Since furnace oil is considered a low value-added product, its prices remain less than that of crude oil. The refineries usually earn their profits through difference between the prices of crude oil and diesel which stood at $15-18 per barrel over the past decade under a faulty formula introduced by the former government.
Now the difference between the prices of crude oil and diesel has come down to $3 per barrel.
The refineries have informed the committee that they cannot sustain their operations beyond January and whatever formula the government plans to put in place should ensure that their losses are recovered and future operations become commercially viable.
Under the options proposed by the independent expert, the refineries would have to close down their operations and the government would have to rely on import of all petroleum products, exposing the national exchequer to heavy outflow of foreign exchange and putting burden on the infrastructure that would not be able to sustain transportation of oil products across the country.
The sources said the ministry of finance had told the committee that reduction in petroleum levy or general sales tax could not be considered because of the IMF programme.
The committee had told the ministry that the only way to provide any long-term relief on oil prices was to fix per litre general sales tax on petroleum products instead of the 16 per cent rate and reduction or elimination of the petroleum development levy (PDL). The apex court had termed the levy double taxation.
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