ISLAMABAD-The rates of kerosene oil and light diesel oil are likely to go up further as Petroleum Division has proposed deregulation of prices and application of petroleum levy and general sales tax (GST) equivalent to high speed diesel (HSD) on both the products.

The Petroleum Division has recommended complete deregulation of the prices of kerosene oil and light diesel oil, allowing oil marketing companies (OMCs) to freely fix consumer prices of both the petroleum products at their own, said a summary of the Petroleum Division available with The Nation. Economic Coordination Committee (ECC) of the Cabinet, while considering a summary submitted by the Petroleum Division under title “Pricing of Petroleum Products” in its meeting held on 31st July, 2022 directed the Petroleum Division to submit a summary to deregulate the pricing of kerosene oil and light diesel oil in consultation with relevant stakeholders.

In a summary, prepared by the Petroleum Division, to be presented to the Economic Coordination Committee (ECC) of the Cabinet, the Petroleum Division has recommended that pricing of SKO and LDO may be deregulated subject to the framework, that no imports of SKO and LD0 will be allowed in the country without proper policy and permission of the government or relevant authority, after deregulation; SKO/LDO will not be covered under the Inland Freight Equalization Margin (IFEM). Transportation charges may vary from location to location and all the inland transportation cost will be directly payable by the consumer on actual cost basis. Oil marketing companies (OMCs) may freely fix consumer prices of SKO/LDO at their own. However, General Sales Tax (GST) and Petroleum Levy equivalent to HSD will be applicable, as per rates notified by the government from time to time. It has been further proposed that refineries and oil marketing companies (OMCs) shall be bound to market SKO/LDO conforming strictly to the specifications approved/notified by the government from time to time. Oil & Gas Regulatory Authority (OGRA) shall be the regulator to look after the interests of all concerned and monitor the marketing of the two products, the summary proposed.

The Petroleum Division has proposed that general sales tax (GST) and petroleum levy equivalent to high speed diesel (HSD) will be applicable on SKO and LDO, as per rates notified by the government from time to time. As per the summary of the Petroleum Division to be moved to the ECC, the combined demand of superior kerosene oil and light diesel oil (SKO/LDO) was just around 0.4% (85,000 MT) of the total demand for petroleum products in the country during FY 2021. Moreover, the entire demand of these products is met through local refinery supplies and no imports are required. However, pricing of SKO/LDO in the country has always been highly subsidized with lowest levels of taxation. This has been done on the premise that these products are “a poor man’s fuel”. However, keeping in view the meager demand of the two products and heavy replacements made by abundantly available substitutes, this appears to be a mere cliché. On the other hand, there is a significant differential between the prices of HSD and SKO/LDO, which leads to adulteration by mixing these two products in HSD, thereby opening avenues for undue profiteering by unscrupulous elements and consequent loss of revenue on HSD supplies. Accordingly, the genuine demand of SKO/LDO is estimated to be quite low, while the products are sold at very high rates in the general market as compared to the officially notified prices. Comparative price break-up of SKO/LDO vis a vis HSD for the period from July 2021 to August, 2022 shows the average differential of about Rs, 27 and Rs. 31 per liter respectively. This gap occurs on three accounts. Firstly, SKO/LDO fall in the consumer business mode and therefore, dealer’s margin is not applicable in price calculation. Secondly, these products are supplied entirely by local refineries and therefore, custom duty is not applicable on them. Thirdly and predominantly, taxes on these products, petroleum levy (PL) and general sales tax (GST) are maintained at minimum levels. Since the price differential vis a vis HSD is on a higher side, it will lead to motivation for adulteration as well as space for OMCs to swallow this gap. Accordingly, it will be appropriate if GST and PL. equivalent to HSD is applied to generate some tax revenues for the government as well rather than allowing an open field for OMCs to play. The final decision on the summary will be made by the ECC.