Wafi Energy Pakistan Ltd. Chief Executive Officer Zubair Shaikh said his UAE-based shareholders were shocked that one pricing change had caused losses greater than the profits generated over more than a year, and cautioned that major foreign investors could consider exiting the market, according to the people.
Pakistan’s oil-marketing companies and refineries warned the government that repeated changes to fuel pricing rules are damaging profitability, straining working capital and risking foreign investment.
At the meeting, Petroleum Minister Ali Pervaiz Malik and Petroleum Secretary Hamed Yaqoob Shaikh sought to reassure executives that upcoming price adjustments would reflect actual import premiums and that no further immediate changes were planned to the current weekly pricing mechanism.
Officials told company executives that gasoline prices in the next review would be based on a premium of about $15.85 a barrel tied to the latest cargo imported by state-run Pakistan State Oil Co., or PSO. Diesel prices would continue to be benchmarked against PSO’s imports from Kuwait Petroleum Corp. at a premium of roughly $5 to $6 a barrel, one official said.
The meeting was convened after the latest adjustments to the pricing formula triggered strong objections from the industry. Executives argued that frequent revisions had made the business environment unpredictable and had undermined earnings.
Asif Iqbal, chairman of the Oil Companies Advisory Council, which represents more than three dozen firms, told officials that diesel pricing had been changed seven times and gasoline pricing four times over the past three months, according to the people. He said the latest revision had wiped out profits accumulated over the past year in a single day and warned that such volatility would deter foreign investment.
Executives from both oil-marketing companies and refineries echoed those concerns. Cynergico Petroleum Plc’s Amir Abbassciy said refineries were being hurt by the widespread availability of smuggled high-speed diesel and called for full deregulation of pricing as well as stronger enforcement against illegal fuel trade, the people said.
Another executive told the meeting that the Oil and Gas Regulatory Authority, or Ogra, was withholding more than Rs. 66 billion in price differential claims stemming from government policy decisions, creating liquidity pressure as banks also charge higher foreign-exchange costs than the State Bank of Pakistan benchmark, the people said.
Most industry representatives urged the government to restore the pricing mechanism that was in place before the recent conflict-related disruptions, saying the formula used in the June 19 revision could erase sector profitability and hurt working capital.
Refinery executives also objected to the government’s move to seek the surrender of 2.5% deemed duty that had previously been earmarked for plant upgrades, despite upgrade contracts not yet being signed, the people said.
Malik told the executives that the seven-day pricing mechanism would remain in place for now and said a committee formed by Prime Minister Shehbaz Sharif would review petroleum pricing, with industry input to be included in consultations. He added that full deregulation could not be introduced abruptly and would instead require a gradual transition, potentially moving from weekly to daily price adjustments.
According to the people, the minister and secretary also told executives that industry representatives had at times weakened the Petroleum Division’s case in discussions with the National Coordination and Management Council by not forcefully defending their economic arguments.
Executives were also criticized for failing to counter what officials described as one-sided criticism on social media. When some participants raised concerns over Ogra’s accessibility, Malik advised them to take up the issue with the prime minister if they were dissatisfied, the people said.
Asif Iqbal told officials, however, that Ogra had given him a prompt hearing, even if the regulator ultimately did not incorporate the industry’s input into its decisions.
