Government-Controlled Fuel Prices Leave Oil Companies With No Room to Survive
Oil Pricing Deregulation has emerged as one of the biggest demands of Pakistan’s petroleum industry after senior executives warned that the country’s current fuel pricing mechanism is financially unsustainable.
According to Usama Qureshi, Vice Chairman of Cnergyico Pk Limited, oil marketing companies (OMCs) and refineries have virtually no authority to adjust fuel prices based on their operational costs because the entire pricing system is tightly controlled by the government.
Qureshi argued that the existing pricing framework has become heavily influenced by political considerations rather than market realities. He warned that unless Pakistan introduces comprehensive oil pricing deregulation, the country’s energy sector could face mounting financial stress, reduced investment, and weakening fuel supply chains.
Oil Pricing Deregulation Debate Intensifies
Qureshi explained that Pakistan’s fuel pricing system lacks fairness because it applies different standards when international oil prices move upward or downward.
According to him, whenever global crude oil prices decline, the government quickly passes on the reduction to consumers during the next fortnightly price review. While this earns political goodwill, the opposite approach is adopted when international oil prices rise.
Instead of immediately increasing domestic fuel prices, authorities often delay or partially absorb the increase to avoid public criticism.
Although this may temporarily protect consumers, Qureshi said the financial burden is transferred directly to oil marketing companies and refineries, which must continue purchasing petroleum products at higher international prices while selling them domestically at regulated rates.
The result is a severe squeeze on working capital, reduced liquidity, and growing financial pressure across the petroleum sector.
Mandatory Fuel Stocks Are Turning Into Costly Losses
One of the biggest concerns highlighted by Qureshi is Pakistan’s mandatory strategic fuel stock requirement.
Oil marketing companies are legally required to maintain buffer inventories to ensure uninterrupted fuel availability across the country. These inventories are purchased at prevailing international market prices.
However, problems arise when the government unexpectedly reduces retail fuel prices after companies have already acquired expensive inventory.
Under the current pricing mechanism, companies are forced to sell these stocks at newly reduced government-notified prices despite having purchased them at significantly higher costs.
Qureshi emphasized that the existing formula contains no compensation mechanism for these inventory losses, forcing companies to absorb substantial financial damage every time such price adjustments occur.
Industry experts believe this recurring issue discourages investment in storage capacity while weakening the financial health of companies responsible for maintaining Pakistan’s fuel security.
Smuggled Fuel Is Creating an Uneven Playing Field
Qureshi also warned that the petroleum industry faces another growing challenge beyond regulated pricing: the increasing circulation of smuggled fuel.
Unlike licensed oil marketing companies, illegal fuel suppliers avoid taxes, regulatory costs, compliance expenses, and official distribution margins. As a result, they can offer fuel at lower prices, attracting customers while eroding the market share of legitimate businesses.
He argued that companies operating legally are forced to comply with strict government regulations, maintain mandatory inventories, invest in infrastructure, and pay taxes, while smugglers operate outside the system without facing similar obligations.
This imbalance not only reduces government tax revenues but also threatens the long-term sustainability of Pakistan’s formal petroleum industry.
Oil Companies Do Not Decide Petrol Prices
Addressing a common public perception, Qureshi clarified that neither oil marketing companies nor refineries determine petrol and diesel prices in Pakistan.
Instead, retail fuel prices are calculated under a government-approved pricing formula that considers international petroleum prices, exchange rates, petroleum levy, taxes, freight margins, dealer commissions, and other regulated components before final prices are announced.
He stressed that the industry simply implements government decisions and has little flexibility to recover rising operational costs independently.
Why Oil Pricing Deregulation Is Becoming Essential
Qureshi concluded that Pakistan’s existing pricing formula is no longer compatible with modern energy markets.
He called for complete oil pricing deregulation that would allow fuel prices to reflect actual international market movements, operational costs, and domestic demand instead of political timing.
According to him, a transparent and symmetrical pricing mechanism should apply equally during both price increases and price reductions.
Such a system would improve financial stability for oil companies, encourage private investment in refining and storage infrastructure, strengthen energy security, and create a more competitive petroleum market.
As Pakistan continues to face economic challenges and energy sector reforms, the debate over oil pricing deregulation is likely to become increasingly important.
Industry leaders argue that without meaningful reforms, the current pricing model could discourage future investment and weaken the country’s long-term fuel supply network.