The government on Tuesday allowed import of 300,000 tons of sugar in anticipation of its shortage and also decided to change petroleum product prices on a fortnightly basis to help the oil sector to increase its profits.
The Economic Coordination Committee (ECC) of the cabinet took these decisions. The ECC also approved the upgrade of Habib Bank Limited’s representative office in Beijing to a branch and remittance of RMB 300 million as the capital of proposed branch from Pakistan.
The ECC approved a technical supplementary grant of Rs340 million for the operationalisation of Swat Motorway.
Sugar is the second commodity that the Pakistan Tehreek-e-Insaf (PTI) government has decided to import after first exporting it, highlighting mismanagement that will also have implications for the thin foreign exchange reserves and the budget due to the need for subsidies.
Earlier, the government allowed import of 1.5 million tons of wheat after first allowing its export after coming to power.
“The ECC considered a proposal of the Ministry of Industries and Production for the import of refined sugar by the Trading Corporation of Pakistan (TCP) to maintain buffer stocks, and allowed import of up to 300,000 tons of white sugar,” according to a statement issued by the Ministry of Finance.
It said the mode of procurement and other modalities would be decided by a three-member committee comprising industries and production secretary, commerce secretary and finance secretary.
The ECC asked the committee to seek input from the Law Division on the preferred mode of procurement and report to the committee in its next meeting.
The decision was taken after the recent review of sugar stocks revealed the fast depletion of stocks. ECC members were of the view that the country may face shortage of the commodity either by the end of September or early October and there was a need to import sugar.
Since international prices were high, the meeting also reviewed the possibility of giving subsidies and a mechanism would be determined by the secretaries’ committee.
The ECC approved a proposal of the Ministry of Energy for the revision in prices of petroleum products on a fortnightly basis instead of the existing monthly basis, according to the Ministry of Finance.
In background briefing to journalists, a senior finance ministry official said the petroleum products pricing mechanism was among the issues that required resolution for the revival of International Monetary Fund’s (IMF) loan programme.
The ECC decided to adopt a revised pricing methodology for motor gasoline and high-speed diesel on a fortnightly basis, based on Arab Gulf Platts average, in view of its advantages for ensuring fair competition, alignment of margins with the international pricing trend and smoothing out volatility and distortions because of purchasing dates of an oil marketing company, said the finance ministry.
The revision in oil prices on a fortnightly basis, coming into effect from August 1, 2020, subject to endorsement by the federal cabinet, would also allow for planning three months ahead with refineries.
As per the existing system, the prices of petroleum products are determined by allowing refineries to fix and announce ex-refinery sale prices on a monthly basis subject to the condition that the ex-refinery prices of petroleum products cannot be more than Pakistan State Oil’s (PSO) average actual landed import price of previous months.
Prices will be based on Arab Gulf Platts daily average for the number of days in the pricing period by using midpoint of bid and ask, as the base commodity price.
Premium above Gulf Platts, freight and incidental charges have to be taken as average of PSO’s procurement for the pricing period, and added to base commodity price.
Taxation and levies will remain unchanged and the exchange rate will be provisionally used for PSO but will be converted to actual rate on the retirement of the Letter of Credit within 60 days.
Each refinery will inform the Ministry of Energy, Oil and Gas Regulatory Authority (OGRA) and Oil Companies Advisory Council (OCAC) of its proposed production plan for high speed diesel and petrol at the start of the month for the following three months. The refineries and OMCs will allocate production bilaterally with the OCAC facilitation of which the first two months will be binding on both the OMCs and refinery while the third month will be indicative.
The OMCs will also inform about their import plans while taking into account the refinery allocation. Any reduction from such supply arrangement will require approval from the ministry. The OMCs will be free to import additional product if they require so to build their stocks or increased sales. However, an OMC cannot sell the product to other OMC licensed pump.
The PSO will be allowed to procure high speed diesel and petrol through open tenders or under the government to government deals under the PPRA rules but the bidding period will be 15 days.
Each refinery will be given July 31 to ensure 21-day stock in the country. Initially the 21-day stock will be based on last year average sale of high speed diesel and petrol. From September this year, the amount will be reviewed based on actual quarterly sale for the previous quarter.
A company having stock below 14 days will be issued a warning and three such warnings received within a month will result into suspension of license by Ogra. Stock falling below 10 days will result into immediate suspension of license.
Presently, the refineries announce ex-refinery sale prices on a monthly basis and oil marketing companies follow these prices in addition to the approved Rs2.81 per litre margin. However, this is subject to the condition that the ex-refinery price of the petroleum products cannot be more than the PSO’s average actual landed import price of the previous month.
At present a product review meeting is held at the start of every month by director general oil, with the participation by all the refineries, oil marketing companies and OCAC. The refineries indicate their expected production and after determining that which oil marketing company is to pick how much of local product, the OCAC advises of projected demand and the balance is to be imported by the OMCs.
The current structure allows OMCs make commercial decisions in violation of their license rules, because they are not allowed risk mitigation measures, the PSO ends up picking the balance, according to findings of ECC’s constituted committee on oil pricing mechanism.
The present system does not cover while month mean of Arab Gulf Platts rates. Sometimes two to three months lag is included in PSO’s previous month price. Only PSO’s rates are benchmark for all other marketing and refinery companies.
The OMCs are importing the oil only when losses chances are low or there are high profit chances.
“No company maintains 21-day stock, if it risks inventory losses,” according to the committee. Also, in a negative refining margin environment, the OMCs prefer importing over lifting local product.
The ECC also discussed a proposal by the Ministry of Energy for third-party access to LNG terminals to use excess capacity or government contracted-unutilised capacity, and approved the proposal for selling the un-utilised capacity.