An oil storage. Below:
Lavish PSO Headquarters in Karachi
The Officially Certified
Oil Rip Off in Pakistan
M A Siddiqui
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
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
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.
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.
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.
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.
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.
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.
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.
to an estimate, the amount plundered on this account alone is
more than Rs22 billion per annum.
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.
oil refineries are mixing kerosene oil with HSD at the refinery
level which basically is a criminal offence," the expert
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
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
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
The following figures regarding HSD spell out the ground
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.