Post-APM: the role of the government

The government has taken a major step in going ahead with the dismantling of the APM (Administered Pricing Mechanism). The part roll back of liquefied petroleum gas prices is a retrogressive step, but perhaps political pressure influencing the pricing of petroleum products will only fade into irrelevance over time. Also, the government should really have appointed a regulator for the oil industry well in time, but it is hoped that this step will be taken now sooner rather than later, because the government should be distanced from decision-making in this sector. This would happen only if a substantially independent regulatory body is established. The dismantling of the APM has come at a critical time when international oil prices have increased beyond expectations. This development has been triggered largely by events in the Middle East, which inevitably create nervousness in the oil market. A swift cooling of tensions between Israel and the Palestinian people would have a favourable impact on prices, and perhaps bring about a reduction. However, till then the oil companies will have to decide on a strategy that does not cause a sudden jump in petroleum product prices, because in the current situation this could lead to political pressures on the companies. At the same time, the oil companies cannot accumulate large losses. And for various reasons, the government would have to resist the temptation of pressurizing the oil companies to reduce prices. It is best to allow the oil industry itself to learn to cope with such situations through efficiency improvements, and better utilization of their existing assets, including retail outlets. In other words, the oil companies will have to learn how to swim in the post-APM situation, and the government should not intervene excessively to influence their decisions.