Brief on the Petroleum Pricing Mechanism
Petroleum Pricing Mechanism (PPM)
The Automatic Pricing Mechanism (APM) was introduced in April 2004 to directly pass on to the consumers all price changes on Gasoline (Mogas-l’essence) and Gas Oil (Diesel) imported by the State Trading Corporation (STC). The Certification Committee (CC) of the APM met on a quarterly basis to verify the correctness of the retail prices. As from November 2008, the CC met on a monthly basis. In July 2006, Fuel Oil was included under the APM.
It was observed that consumers found it hard to reconcile actual oil price movements on the world market with the domestic price changes certified by the Certification Committee. The following are the main factors that rendered the exercise complex:
- Volume Factor
- Windfall Gains/Losses
- Rates of Exchange
Implementation of the Petroleum Pricing Mechanism (PPM)
The Petroleum Pricing Mechanism (PPM) was introduced in January 2011 to replace the APM in order to simplify the complexity of the exercise. The retail prices of Mogas and Gas Oil are computed based on the Consumer Protection (Control of Price of Petroleum Products) Regulation 2011.
The main objective of the PPM is to mitigate the effects of world price movements on retail prices. The computation of the retail prices for Mogas and Gas Oil were based on a 12 months’ average Platts Price (last 6 months’ actual prices + 6 months’ future prices + a margin of up to 4%. As from November 2015, the 12 months’ average Platts Price has been reduced to 6 months (last 3 months’ actual prices + 3 months’ future prices).
The windfall gains/losses are not accounted in the price structure of Mogas and Gas Oil as were the case under APM. Instead they are included in the Price Stabilisation Account (PSA).
Price Stabilisation Account (PSA)
For the purpose of stabilising the retail prices of Mogas and Gas Oil, two separate PSAs have been set up. Any surplus/deficit in respect of every tanker of Mogas and Gas Oil is transferred to the PSA. Windfall Gain arising out of an increase in the retail price as well as windfall loss arising out of a decrease in the retail price, are dealt with in the PSAs.
Timing of Price Fixing
Any price revision for Mogas and Gas Oil is carried out separately depending on the evolution of world prices and the balance available in the PSA in respect of each product.