ISLAMABAD: The government has deferred operationalising the Petroleum Prices Stabilisation Fund amid elevated domestic fuel prices and volatility in international oil markets, as petrol and diesel approach Rs400 per litre amid rising tensions in the Strait of Hormuz.
Thank you for reading this post, don't forget to subscribe!The issue was discussed at a Petroleum Price Committee meeting on October 19, focusing on petroleum product deregulation, reducing market distortions and managing potential windfall gains, a senior official told The News.
Under the proposed mechanism, an additional levy would be collected on petrol and high-speed diesel when international crude oil prices fall to between $65 and $75 per barrel, allowing reserves to accumulate during periods of relatively lower prices.
Officials have proposed a benchmark retail price of Rs275 per litre. If the retail price falls Rs10 below this benchmark, Rs5 per litre would be transferred to the fund, while the remaining Rs5 would be passed on to consumers. Conversely, when prices rise above the benchmark, accumulated reserves could be used to cushion consumers against sharp increases.
The fund was formally notified on June 29, 2026, following the federal cabinet’s decision on June 5. However, its operational framework remains incomplete. Although the notification established an accounting mechanism within the Public Account of the Federation, separate approvals are still required to finalise procedures for collecting, managing and utilising the proceeds.
The timing of implementation will depend on international oil prices, government decisions on petroleum levies and the finalisation of operational procedures.
The Petroleum Development Levy (PDL), initially intended in part to support price stabilisation, now primarily serves as a source of government revenue. The proposed fund seeks to earmark a portion of collections during favourable market conditions for consumer protection when international prices rise.
Meanwhile, the government plans to deregulate petroleum products in phases rather than liberalising all products simultaneously.
High-octane blending component (HOBC) and furnace oil are already fully deregulated, while petrol is targeted for deregulation by June 2027. Subsequent phases will cover kerosene oil, light diesel oil (LDO) and JP-8.
High-speed diesel is expected to be deregulated last because of its direct impact on transportation costs, agriculture and overall inflation.
The proposed stabilisation mechanism is intended to reduce the impact of international oil price fluctuations on domestic consumers. However, its effectiveness will depend on the final operating rules, the availability of accumulated reserves and the government’s decisions on petroleum pricing and levies.
Story by Khalid Mustafa
