LCs cost, exchange rate to weigh on POL prices review

Khalid Mustafa
Monday, Aug 15, 2022

ISLAMABAD: The Finance Ministry seems upset as to how to fix the POL price as last time the government had changed the exchange rate formula from August 1, 2022, under which the MS price tumbled by Rs3.05 per liter and diesel Rs8.95, inflicting damage of Rs15 billion on oil marketing companies.

The government changed the exchange rate formula from the last day of the fortnight to an average of two weeks, something that has irked both the OMCs and refineries. The decision led to a loss of Rs9.8/litre on hi-speed diesel and Rs8.21 per liter on Mogas (petrol) in the first 15 days of August.

Contrary to the expectations that the POL prices will decrease from August 16, if kept in view the existing exchange rate formula based on the average of two weeks, the price of petrol is expected to increase by Rs9.95 per liter as per the working by OGRA and high-speed diesel by Rs8.96 per liter, a senior official at the Energy Ministry told The News.

The increase in the POL price will certainly be a shock knowing the fact that the value of PKR has appreciated against the US dollar by almost Rs20 and crude oil prices also fluctuated between $92 to close to 100 per barrel.However, the oil industry is of the view that the price of petrol from August 16 should be increased by31.08 per litre and diesel by Rs8.96. And this is one of the scenarios the oil industry is expecting, keeping in view the average exchange rate at Rs229. PSO’s imports remained costly with also exchange rate at the higher side and LCs got opened at more than the SBP rate by commercial banks, which is why the price of petrol and diesel will escalate this time. The finance ministry is in a fix about the finalization of the average exchange rate, which will determine the exact price of MS and diesel from August 1, 2022.

PSO, according to industrial sources, needs to adjust upward the exchange rate loss by Rs16 on HSD and Rs30 on petrol. The current Petroleum Development Levy (PL) stands on diesel at Rs10 per liter and Rs20 on petrol. The dealer margin on petrol has also been increased to Rs7 per liter.

The oil industry says that the said increase in prices of petrol and diesel will be as per the existing OGRA price formula, the last 15 days Platts average plus PSO vessels premium and PSO import incidentals. The working is also based on the average of the last 15 days $ exchange rate, with estimated PSO $ exchange rate loss adjustment (as per the last fortnight’s price formula).

Top Energy Ministry officials said that the Mogas price from August 16 will increase due to high premiums and high L/C rates, but diesel will witness a lesser increase as it has a fixed margin and no L/C. But after August 15, the government will be able to determine the exact POL prices for the next fortnight.

It is pertinent to mention that relevant officials at the finance ministry, Petroleum Division and OGRA are under oath that they will not divulge any kind of information about the POL prices that will be effective from August 16.