Govt May Cut Diesel Refining Margin From $41 to $30 and Make PSO Sole Importer in Extraordinary Circumstances

The government is considering a major change to Pakistan’s diesel pricing mechanism, with the Ministry of Petroleum recommending a cut in the refining margin from $41 to $30 under extraordinary circumstances, according to sources. Under the proposed wartime mechanism, diesel prices would be based on the actual cost of crude oil plus a $30 refining margin, and Pakistan State Oil (PSO) would become the sole diesel importer during such circumstances. Any additional costs would be covered through the Inland Freight Equalization Margin (IFEM). The ministry has also recommended abolishing the 10% customs duty currently built into diesel prices and refunding actual import duties instead.

New Pricing Formula

The Oil and Gas Regulatory Authority (OGRA), together with consultancy firm KPMG, has been directed to formulate a new crude oil-based pricing formula for wartime conditions. It is meant to be a framework that can be activated in extraordinary circumstances while taking actual crude oil costs into account.

Depot Reforms

A review of the countrywide depot network has been completed to reduce freight costs and facilitate eventual deregulation of the petroleum sector. Six depots will be excluded from IFEM freight calculations from January 1, 2027, and OGRA is expected to direct oil marketing companies to keep petroleum product stocks at their depots. OGRA will finalize the necessary amendments to the freight equalization formula by December 2026.

Petrol Pricing Stays for Now

Consensus has been reached to keep the existing petrol pricing system for now, and there are no immediate plans to change it. However, the government has set a target of complete petrol market deregulation by June 30, 2027. Authorities have directed that a phased roadmap be prepared, and OGRA has been asked to submit a comprehensive policy statement on consolidation of the oil sector.