Government Plans Fuel Price Deregulation: ATRL Poised to Benefit

Recent reports indicate that the government is gearing up to accelerate the deregulation of petroleum products amidst concerns over smuggled oil products and escalating fuel prices, positioning Attock Refinery Limited (ATRL) for substantial gains.

In an earlier report by Arif Habib Limited, titled “Pakistan’s Refinery Sector,” released on March 6th, 2024, it discussed this development in detail in the report, highlighting the potential impact on the industry.

The government’s current role primarily involves announcing fortnightly fuel prices, determined by the Oil and Gas Regulatory Authority (OGRA), to reflect international market fluctuations and exchange rate adjustments for consumers.

Now, the petroleum division has directed OGRA to conduct a thorough analysis of the implications of petroleum product deregulation within the next three days. Under the new framework, OGRA and the Competition Commission of Pakistan will assume greater responsibility in ensuring product quality, availability, and fostering a competitive environment to prevent market collusion.

With deregulation looming, consumers can expect significant price variations within cities and among oil marketing companies (OMCs). Those near ports and refineries may benefit from lower rates, while distant consumers could face higher prices, varying from PKR 3.00/ltr to PKR 10.00/ltr, depending on transportation costs.

In this scenario, ATRL, strategically located in the northern region (Morgah, Rawalpindi), is poised to capitalize on substantial freight charges via the Interim Freight Equalization Margin (IFEM) imposed by other OMCs. This move is expected to bolster ATRL’s Gross Refining Margins (GRMs).

Assuming a weighted average IFEM on Motor Spirit (MS) and High-Speed Diesel (HSD), ATRL stands to benefit significantly, potentially seeing an incremental annualized earnings impact of PKR 55.49/share due to IFEM savings.

This development positions ATRL as a key beneficiary of the impending fuel price deregulation, highlighting its potential for substantial growth in the evolving market landscape.