The recent decision-making, well intended but done without any in-depth analysis, market studies and safety mechanism, has come back to haunt the government of Prime Minister Shahid Khaqan Abbasi.

There are no two opinions about the need to improve fuel grades, upgrade infrastructure and modernise market conditions. But when such measures ares taken in the absence of proper homework, they seem to go against public and business interests and disturb the revenue collection mechanism.

The deregulation of diesel pricing has been postponed at least until next month owing to unpreparedness of the institutions concerned to put in place an implementation mechanism. Gas sector reforms are also put on hold until Mr Abbasi is able to convince provincial chief ministers.

The decision to stop power generation from furnace oil and diesel is already having a negative impact on the smooth running of power plants at a time when the government is preparing to formally announce an end to load shedding.

Most of these proposals were originally pushed forward by the incumbent prime minister on the recommendation of the industry but were blocked by former prime minister Nawaz Sharif and Finance Minister Ishaq Dar.

The decision to improve petrol grade from 87RON (Research Octane Number) to 92RON was apparently a great step forward aimed at “better engine efficiency and lower carbon footprint” and offered price compensation to the industry for the switchover.

Without a proper check and balance mechanism, results are moving in the opposite direction

Without a proper check and balance mechanism, the results are moving in the opposite direction. Based on laboratory tests at home and in Germany, a leading car maker— Honda — has launched a formal complaint with the government and the oil and gas regulator that oil industry is using a ‘cheaper additive’ to increase RON from 87 to 92.

The company has already suspended production of the Civic Turbo model — a latest variant — that was initially introduced on the prospects of 92RON. Customers have been expressing concern over lower fuel economy.

Lab-tests revealed the chocking of Catalytic Converter was the major cause of lower fuel efficiency owing to excessive manganese content. The converter is responsible for converting harmful gases into environment friendly exhaust gases.

Honda complained that low quality fuel being sold in the name of 92RON was causing engine knocking that again pointed to high concentration of manganese content — to the extent of 87 per cent — in the fuel that also has harmful effects on human health. Ogra is in investigating the matter.

The most important objective quoted in the official summaries for the deregulation of margins to oil companies and dealers on high speed diesel was nullified the moment it was taken up by the Economic Coordination Committee (ECC) of the Cabinet more than month ago.

The first objective in the summary said the margins should be deregulated subject to the condition that OMCs would “enhance the level of commercial stock/storage from existing 20 days to 30 days of their sales within three years”. The second condition was that OMCs/dealers “would maintain online inventory system” to enable monitoring of their oil depots.

The Prime Minister and the Ministry of Energy under his direct portfolio did not press when finance Minister Ishaq Dar opposed enhancing stocks by 10 days cover saying it would involve additional foreign exchange cost of about $5 billion. The second condition of online inventory and its access to government institutions was also shelved.

The ECC then boiled down deregulation condition to maintenance of commercial stock/storage for at least 20 days and adding a fuel marker at depot stage to avoid adulteration. Maintenance of stocks for 20 day coverage is already a condition under petroleum rules and the blue book standard operating procedures.

The petroleum division in its summary conceded that deregulation in HSD margins would lead to prices varying from pump to pump across the country but expected the people would prefer to buy from the filling stations offering cheaper and efficient product. It did not elaborate how the people would know about the quality and efficiency of the product in a market where even the regulator did not have the capacity to judge product quality.

This was despite the fact that almost all the stakeholders, from the planning commission to the Federal Board of Revenue, Ogra and Pakistan Institute of Development Economics had disagreed with the deregulation for one reason or the other, but mostly for the fact that it would cause disruption in equalised pricing system, carterlisation and the lack of clear cut downstream policy.

The planning commission was of the view that a clear cut downstream oil policy covering all aspects of refinery, petroleum product logistics, storages and marketing and distribution including deregulation objectives and results should be put in place. In the absence of proper ground work, deregulation could prove counterproductive.

It was still unclear at what stage and how general sales tax would be imposed and collected given the fact that most of the retail outlet operators lack a proper record keep and seldom issued receipts to the customers.

Also, considering the sensitivity of HSD pricing on the wide range of economic activities, the governments’ ability to keep the prices affordable or unchanged will be severely impacted. The OMCs margin was already reasonable given the fact they were offering incentives to dealers. The past examples of incentives for improved infrastructure had shown little positive impact.

A better option could have been deregulation of petrol pricing in the first phase because of its limited impact on wider economy. The HSD’s market share is controlled by six leading firms to the extent of 88pc and was used in transportation, agriculture, power and government sector and could have far reaching impact on the economy and general public.

Published in Dawn, The Business and Finance Weekly, November 6th, 2017