Saturday, May 10, 2008, Jamadi-ul-Awwal 3, 1429    

OCAC clarifies on refineries pricing formula

Islamabad—The Oil Companies’ Advisory Committee (OCAC) on Friday termed the news reports appearing in press recently on the subject of “refineries’ pricing formula,” as misleading and contrary to the factual situation. “These reports are misleading and do not reflect situation,” says a press release from the Oil Companies’ Advisory Committee (OCAC).
The refining industry serving the domestic and defense requirements, is strategic in nature, capital intensive (requiring huge investments) and extremely sensitive to the international price movements and remains under continuous threat for survival. In this backdrop, since 1992 to 2002 the refineries operated under the 1992 “import Parity Pricing formula” whereby the rate of return on paid-up capital was limited to a range of 10% to 40%.
The price fixation of products under the above formula was handled by the Government. It said this pricing formula was modified with effect from July 1, 2002 whereby the concerned refineries have been allowed to charge a deemed duty on some of their products enabling them to run their operations on a self-financing basis where profit after tax for a year above 50% of the paid-up capital, as of 2002, if any, retained as a reserve to offset against future losses or to make investments for expansion or up gradation of the respective refineries and is therefore not available for distribution.
However, even with this pricing mechanism, refineries are not guaranteed to make profit and in fact all the local refineries suffered a loss in some quarters of last year and earlier years. Therefore, to say that deemed duty “was meant for giving undue benefit to the refineries” as in the Business Recorder report, is not only unfounded but also far from reality.
It may further be noted that the deemed duty concept is in other countries, the closest example being India. The growth of Indian refining sector speaks of the economic benefit yielded to that country which has been turned from a net importer to an export hub of the region because of the right policies.—APP