ISLAMABAD: Pakistan’s domestic refineries have contributed an estimated Rs22 billion towards the government’s efforts to contain high-speed diesel (HSD) prices since August 20 by accepting a cap on the diesel crack spread and foregoing the benefit of higher international refining margins, according to industry calculations.
The contribution represents the estimated pricing benefit forgone by refiners under a revised HSD pricing mechanism agreed with the government. Introduced on August 20 following consultations with the refining industry, the mechanism capped the allowable HSD crack spread at around $41.89 per barrel.
Industry calculations show that the average international diesel crack spread since the revised formula was introduced has been approximately $51.85 per barrel, nearly $10 above the fixed crack allowed under the domestic pricing mechanism.
Refinery officials, however, argue that the effective sacrifice is higher because the previous HSD pricing benchmark also included a premium of around $5.10 per barrel. On this basis, they estimate the net differential at approximately $15.06 per barrel.
With domestic refineries producing roughly 5.1 million barrels of HSD since August 20, the cumulative impact is estimated at around $76.8 million, equivalent to approximately Rs21.5 billion at the exchange rate used in the industry calculations.
In effect, refiners estimate that they could have earned around Rs21.5 billion more during the period if the previous pricing mechanism had continued to fully reflect international diesel values.
Parco bears largest share
The estimated contribution is distributed among the country’s five refineries according to their respective shares of domestic HSD production.
Parco accounts for the largest share, at approximately 44pc, translating into an estimated contribution of around Rs9.5 billion.
National Refinery Limited (NRL) and Cnergyico Pakistan Limited (CPL) each account for around 16pc of domestic HSD production, putting their respective estimated contributions at approximately Rs3.4 billion.
Pakistan Refinery Limited (PRL) accounts for around 14pc, equivalent to roughly Rs3 billion, while Attock Refinery Limited (ARL) represents approximately 11pc, or around Rs2.4 billion.
The refinery-wise figures are estimates based on production shares and are intended to indicate the approximate distribution of the overall Rs21.5-Rs22 billion industry contribution. They do not represent audited company-level amounts.
Refiners oppose further reduction
The issue has gained importance amid discussions over possible further changes to the HSD pricing formula.
Refiners have opposed proposals to reduce the existing crack ceiling, arguing that the current mechanism already prevents them from capturing the full international value of diesel. They have also pointed to a substantial increase in actual cargo premiums.
The industry maintains that while domestic refiners supported the government during a period of exceptionally high international diesel prices, prolonged suppression of refinery margins could eventually affect crude procurement, refinery utilisation and investment plans.
The ongoing debate therefore centres on balancing short-term consumer relief with the financial sustainability and investment requirements of Pakistan’s domestic refining sector.
Story by Khalid Mustafa
