The federal government has revised Pakistan’s petrol pricing mechanism, following cabinet approval on 30 October, with the Petroleum Division notifying the Oil and Gas Regulatory Authority, known as OGRA, and refineries of the changes.
This article is a follow-up to the 1 November report on the levy transfer, explaining how the revised mechanism works. It is not a new price announcement, and it does not set out new retail prices. Instead, it describes the formula and arrangements approved by the cabinet and notified to OGRA and refineries.
Under the revised mechanism, the import price is based on the actual import cost of the relevant Pakistan State Oil cargo. If that cargo is unavailable, the import price is based on the last available cargo’s premium, incidentals and customs duty. For the next 30 days, refineries’ ex-refinery price fixes premium, incidentals and customs duty at 7 March 2026 pre-war levels. The ex-refinery price is the price at which refineries sell petrol, before distribution and retail costs. Fixing those elements at pre-war levels for a 30-day period provides a temporary anchor, based on conditions before the war-related changes that affected prices.
The difference between the import price and the ex-refinery price is surrendered under the petroleum levy head C03901. In other words, where the import price and the ex-refinery price differ, that difference is not retained by refineries or by other parts of the supply chain, but is surrendered under that specific levy head. The arrangement is designed to ensure that the difference is accounted for through the levy system, rather than being absorbed elsewhere.
The benefit of that arrangement is passed to petrol consumers only, through a corresponding reduction in the retail price. That point is important: the benefit is directed specifically to petrol consumers, via a lower retail price, rather than being spread more widely or retained. Consumers should therefore see the effect in the price they pay at the pump, corresponding to the difference surrendered under the levy head.
OGRA has directed refineries to deposit adjustments exceeding 49 rupees. That direction sets a threshold for deposits, requiring refineries to deposit amounts above that level as part of the implementation of the revised mechanism. It is a practical step to ensure that the adjustments are collected and accounted for as intended.
Prices announced on 30 October were determined under the new formula, officials said, and officials said the formula helped avert a major increase. The 30 October announcement therefore serves as the first practical application of the new approach.
Petroleum Minister Ali Pervaiz Malik said more than 12 to 13 million deserving people have been provided subsidised petrol at pre-war prices. That figure, as stated by the minister, points to the scale of subsidised provision under the arrangements, with millions of deserving people receiving petrol at pre-war prices. The minister’s statement links the pricing mechanism to a wider effort to protect deserving consumers from price increases.
Refineries, however, have objected to the move, saying it surprised them, was taken without consultation and could see their margins go negative. Margins, in this context, refer to the difference between a refinery’s costs and its selling price, and a negative margin would mean selling at a loss. The refineries’ objection therefore raises a commercial concern: that the revised mechanism, while benefiting consumers, may put pressure on refinery finances if margins fall below zero.
That objection highlights a tension that often arises in fuel pricing: measures designed to protect consumers can create difficulties for suppliers if they are not consulted or if the formula does not adequately cover their costs. The refineries’ claim that the move was taken without consultation adds a procedural dimension to the debate, suggesting that they would have preferred to be involved in discussions before the change was made.
For consumers, the immediate question is the retail price and whether the benefit is passed through as intended. For refineries, the question is margins and sustainability. For the government, the challenge is to balance those interests while maintaining supply and implementing the cabinet-approved formula.
Source: Express Tribune, Business Recorder.
