The cabinet of former Prime Minister Imran Khan approved a change in the high-speed diesel (HSD) pricing mechanism to replace the set negotiated premium of long-term supplier Kuwait Petroleum Company (KPC) with a higher market-based weighted average just days before it was disbanded.
The modification was agreed by the federal cabinet through circulation, based on an earlier decision by the Economic Coordination Committee (ECC) to assure diesel availability throughout the harvest season in the face of uncertain foreign markets. This allows spot merchants to charge Pakistani importers a higher premium for a three-month period, from April to June.
The Cabinet Division has communicated to the Petroleum Division and the Oil and Gas Regulatory Authority (Ogra) the federal cabinet’s “ratification” of the ECC decision, along with a direction to report on the decision’s implementation progress.
According to the records, the cabinet was informed that the Petroleum Division had concluded that the KPC premium should be omitted from price computation for the period April to June 2022 after consultations with Ogra in a series of meetings.
As a result, the premium on HSD imports is now based on the average tendered premiums for the previous fortnight at Pakistan State Oil.
In the event that the PSO does not issue a tender in a given fortnight, the premium from the previous tender will be used to calculate HSD’s ex-refinery price. This approach, however, may result in certain benefits for the PSO and local refineries, which would be adjusted by Ogra for recovery via an inland freight equalization mechanism (IFEM).
“This mechanism would be reviewed on the recommendation of Ogra on a fortnightly basis,” the Cabinet Division said.
