WASHINGTON DC, Sept 9, 2005 | ISSN: 1684-2057 | www.satribune.com

50% Banner Ads White 125x150 Click to Make a Donation Click to Make a Donation Click to Make a Donation

 

An oil storage. Below: Lavish PSO Headquarters in Karachi

The Officially Certified Oil Rip Off in Pakistan

By M A Siddiqui

KARACHI, September 9: With full knowledge and complete approval of the Government, big oil companies in Pakistan are ripping off the people by jacking up prices at gas stations, under any unrelated pretext, thanks to the scam called the Oil Companies Advisory Committee (OCAC).

“It is the biggest fraud with the general public as well as the economy of the country going on in the name of OCAC with the blessing of the Petroleum Ministry,” an expert well-versed with the situation revealed.

Details available to the South Asia Tribune prove that the waters of OCAC are more fishy than they appear. OCAC is the regulatory body that manages the prices of oil products in the country. That it has turned into a hand maiden of oil companies to screw the consumers is another matter.

The scam being run by the OCAC is fairly sophisticated and well covered for ordinary folks to understand, far less object to. Usually OCAC uses the price of West Texas International (WTI), a US crude, as its benchmark. This is the first step of the rip off because Pakistan imports its crude from the Middle East where prices are usually $10 per barrel less than WTI.

Even out of the Middle East, Pakistan State Oil (PSO), the largest crude oil consumer takes its supplies from Kuwait Petroleum which sells oil on a long-term basis and prices remain fairly stable. Purchases from KP have been going on for the last 35 years.

Shell Pakistan, another major buyer, gets its supplies from its mother company Shell International while Caltex Pakistan gets its oil from Caltex International.

“In all these purchases the per barrel price has never crossed $37 which can be verified from the accounts of these companies,” the informed oil expert told the South Asia Tribune.

Instead of using the actual import price of the crude, the OCAC has cleverly stuck to the lucrative old formula which allows it to fix the retail price pegged to the price of Naphtha. “OCAC adds the price of Naphtha to the highest international market price of crude, the latest being $71 per barrel, and thrusts it down the throats of an unknowing public,” the expert said.

“For five years, these greedy corporate barons have managed to get $30-$40 per tonne more than they paid bringing profits by the millions. Pakistan consumes 1.4 million tonnes a year so profits for five years is not difficult to assess,” the expert said.

The most lucrative field for the oil companies is playing with the price of High Speed Diesel (HSD). The quantum of profit margins here can be estimated as Pakistan consumes 9.3 billion liters of diesel annually.

According to the standard set by Platts Oilgram (the official reference journal) no product in Pakistan has the required quality to qualify as a “premium class product”. But OCAC continuously sells low quality products as “premium grade” and fraudulently jacks up its price.

According to the Platts Oilgram, HSD containing not more than 0.5 per cent sulphur is considered as a premium product and the additional cost ranges from $0.8 to $1.3 per barrel.

Pakistan started importing some premium grade HSD, with a 0.5 per cent sulfur content in June 2003 but not a single oil refinery in the country produces this quality HSD.

“All the refineries are producing 1 per cent HSD that is not a premium product. But all the refineries are adding premium costs ranging from $1.67 per barrel to $2.6 per barrel and passing on this undeserved extra surcharge to the consumers,” says the expert.

According to an estimate, the amount plundered on this account alone is more than Rs22 billion per annum.

The oil mafia is also using another lever to raise the POL prices artificially. It is the unnecessary levy of 11 per cent regulatory duty on HSD and 6 per cent on other products starting from June 2002. But this duty should be levied on imported oil only. OCAC allows even local producers to charge it and not a single rupee is paid to the Government Treasury.

By this trick, local refineries benefit to the tune of Rs4.8 billion per annum as duties have been included in the price setting mechanism.

The third trick to continuously rip off the consumers is through changes in the specifications of the products.

"The oil refineries are mixing kerosene oil with HSD at the refinery level which basically is a criminal offence," the expert says.

These unchecked money making alternatives have allowed Oil Marketing Companies and refineries to boost their revenues and profits which are directly proportional to the burden placed on the consumers.

Thus the earnings per share (EPS) of National Refinery Limited (NRL) rose from Rs4 in 1998 to Rs27.82 in 2003-04 despite the fact that auditors reported Rs5 billion worth of crude un-accounted for. The OCAC claim that corrections would result in refinery closure.

The next level of artificially jacking up the prices is escalation in marketing margins and retailer margins. Prior to October 1999, marketing companies were getting fixed margins ranging from Rs0.22 to Rs0.55 per liter.

The then Secretary Petroleum therefore lied to the Cabinet that it was pegged at 2 per cent of retail and wanted it to be increased initially to 3 per cent and later to 3.5 per cent. On paper it seemed to be a 50 to 75 per cent raise.

The trick was to apply this raise not on fixed margins of Rs0.22 – Rs0.55 per liter but on retail price, thus compounding the increase to almost 300 per cent.

For example, the margin on gasoline which stood at Rs0.52 per liter increased to Rs1.89 per liter. Same was done in the case of retailer margins.

The following figures regarding HSD spell out the ground reality:

The massive increases in these margins were allowed by the Government on the pretext that Oil Marketing Companies would build additional storages in the country but till today not a single storage has been built but all the profits have been swallowed.

Email story  Email Story | Discuss story Discuss Story

Home | Back to top

Copyright 2002-05 South Asia Tribune Publications, L.L.C. All rights reserved.