The Economic Coordination Committee (ECC) of the Cabinet accepted the Petroleum Division’s summary on High-Speed Diesel (HSD)/Gas Oil Premium on Friday.
The summary was intended to facilitate and level the playing field for oil businesses in comparison to Pakistan State Oil (PSO).
Shaukat Tarin, Federal Minister of Finance and Revenue, presided over the Economic Coordination Committee meeting.
The Petroleum Division provided an overview of High-Speed Diesel (HSD)/Gas Oil Premium. The summary was intended to facilitate and equalize the playing field between oil firms and PSO.
After deliberation, the chair approved the summary and recommended that the premium be revised every two weeks. As a result, its influence would vary depending on the international energy market.
The ECC accepted the parameters for determining the ex-refinery/import prices of Mogas (petrol) and HSD (diesel) while evaluating a summary submitted by the Petroleum Division on July 21, 2020, whereby the base price is determined on the basis of 15-day average FOB prices in the Arab Gulf market.
PSO’s most recent available import premium and incidental charges are added to the aforementioned base price to arrive at C&F pricing for finalizing local consumer prices.
The premium (freight and supplier’s margin) is a lump sum cost negotiated or offered in a tender procedure by the supplier/exporter. PSO, as a public sector organization, is required to buy imports in compliance with PPRA rules/regulations.
According to current procedures, PSO buys all of its mogas requirements through spot tendering, while the majority of its HSD imports are made through a long-term deal with Kuwait Petroleum Corporation (KPC), which is revised/reviewed biannually. Long-term, the premium is lower than the tendered premium.
The KPC premium for PSO’s HSD cargoes for January-June 2022 is currently $2.40 per barrel. In the event that KPC is unable to meet PSO’s HSD demand, the state-owned oil marketing business PSO imports from the spot market.
When PSO buys from both sources (KPC and spot market), the weighted average of the KPC and spot premiums is used as a benchmark to compute consumer pricing.
As a result, the premium on HSD imports can be compared to PSO’s average offered premium during the previous two weeks.
If there is no PSO tender in a given fortnight, the premium from the previous tender may be used to calculate the HSD ex-refinery price.
However, this arrangement may result in some benefits for PSO and local refineries, which OGRA may adjust for recovery via the IFEM mechanism.
On a fortnightly basis, this method would be reviewed based on OGRA’s recommendations.
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