According to media reports, the government is all set to speed up the process of deregulating petroleum products amid a rising influx of smuggled oil products in the country, as complained by the oil industry and increasing fuel prices. We already discussed this development in our report, “Pakistan’s Refinery Sector,”  released on March 6, ’24. Please see the full report here (Upgrade policy to incentivise refineries).

Currently, the government’s sole responsibility is to announce fortnightly fuel prices, determined by OGRA, to reflect the effects of the international market, exchange rate adjustments, and IFEM on consumers.

The petroleum division has instructed the Oil and Gas Regulatory Authority (OGRA) to present an analysis of the implications of petroleum product deregulation within three days.

Under the new framework, OGRA and the Competition Commission of Pakistan will play a more significant role, despite their limited capacity, in ensuring product quality and availability and fostering a competitive environment to prevent market collusion.

This would imply that the IFEM mechanism will also be deregulated, resulting in petroleum prices varying considerably within cities and oil marketing companies.

Consumers near ports and refineries would benefit from purchasing products at lower rates, whereas those far away would pay higher prices. Depending on transportation costs, the price could vary from PKR 3.00/ltr to PKR 10.00/ltr.

ATRL set to cash in big with the deregulation

With deregulation on the horizon and ATRL being situated in the northern region (Morgah, Rawalpindi), it is anticipated to capture a major portion of freight charges via IFEM charged by other OMCs to deliver fuel in the demand centre (Punjab) and will significantly support ATRL GRMs.

Assuming a weighted average IFEM on MS of ~PKR 9.50/litre (comprising 30% White Oil Pipeline (WOPP) with a tariff of PKR 3.66/litre and 70% via bowsers with a tariff of PKR 12/litre) and on HSD of ~PKR 2.78/litre (100% WOPP), ATRL could potentially see an incremental annualised earnings impact of PKR 55.49/share due to IFEM savings.

Courtesy – AHL Research