Deregulating market prices



AS a general principle, it is possible to argue that markets should play a greater role in determining prices, but there are some areas where there is a clear and manifest exception. For a country like Pakistan, the market cannot be allowed to determine the price of major vehicular fuels because our petroleum supply chain is brittle, and the population that is served is spread over a vast area and far-flung regions are likely to suffer. Therefore, the proposal advanced by the petroleum ministry to deregulate the prices of High Speed Diesel, followed by petrol at a later stage, deserves the opposition of the Planning Commission and the regulator that it is facing. The ministry needs to first prove that the government has enough control over the oil marketing companies to ensure that they will hold up their end of any bargain with the state. Past experience with ‘deemed duty’, and the failure of the OMCs to invest their required share in building their storages, which are vital for serving as synaptic gaps to protect the supply chain from unanticipated short-term shocks, does not inspire confidence in the ability of market forces to serve the public interest.


Eventually, it might be possible to move towards deregulating vehicular fuels after market forces have been tamed by a strong and independent regulator that is capable of acting like a referee in the market. In order to get there, though, the petroleum ministry should focus its energy on developing the proposals that would be required to strengthen Ogra, the regulator, and create the tools with which it can penalise the OMCs without fear of disrupting the supply chain. At the moment, it appears the ministry and the regulator are having a difficult enough task getting the OMCs to follow safety regulations in their contract carriages, putting precious lives at risk. Any strong step in enforcing the existing regulations in this area could potentially hamper the supply chain, thereby constraining the space within which punitive measures can be taken. The fragility of the oil supply chain is a major constraint at the moment, and under these conditions, passing pricing powers to the same OMCs risks creating a situation where the public interest suffers while the private vested interests are enriched. The vehicular fuels area of the petroleum sector is not ready for market forces to determine prices.


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Mian Bilal