People in Pakistan had been using low quality fuel for a long time before the government decided to use Research Octane Number (RON) 92 instead of RON 87. A similar decision has been taken by the government to import better quality diesel in order to improve the efficiency of vehicles. The government of Pakistan has decided to introduce improved quality of High Speed Diesel (HSD) under the deregulated regime of Oil Marketing Companies (OMCs) and dealer margins.
Ministry of Petroleum has drafted a summary that will require the approval of Economic Coordination Committee to further the decision on diesel import. Source said that Oil and Gas Regulatory Authority (OGRA) has already been asked to comment on the move before the final decision is taken by the ministry.
The proposed move to introduce higher quality diesel under the deregulated regime is taken in order to ensure a strong competition between OMCs for better quality diesel provision. Officials of the petroleum ministry said they were looking into introducing a deregulated regime before they finalize the implementation of the proposed move.
However, one thing that the Ministry will have to make sure is that no cartel should form by the OMCs under deregulated regime. Currently, the top six OMCs in Pakistan have a market share of 87.9% that raises concerns over the likelihood of cartel formation, which can potentially abolish the competition factor that the government is looking out for.
The government needs to first prove that it has enough control over OMCs to prevent a cartel. Ministry of Petroleum along with OGRA needs to come up with a plan that can prevent OMCs from forming a cartel by either threatening to stop supply or through other preventive measures. Deregulation is considered as a vital step in enforcing competition amongst companies.
Better quality of diesel will enhance the lives of vehicle engines, considering that new engine designs now need high quality fuel for high quality performance.
But the improved quality of diesel will be sold on relatively higher price which will result in increased prices of related goods. Primary distribution is done through trucks and trailers, and increase in fuel prices means increase in their rates, the ultimate burden of which will be endured by the end consumer.