What impact does the government’s pricing of special refining products have on refineries?

According to Energy Press, the pricing of special refining products has become one of the most serious challenges between the industry and government decision-making institutions these days. While, according to the Cabinet resolution, this responsibility should be the responsibility of the Refining Industry Association, now its authority has been transferred to the National Refining and Distribution Company. This change was made following the protest of oil producers against the price of lube oil; however, refining industry activists believe that such an intervention will be detrimental to the entire chain.

Mandatory pricing and its impact on production
In an exclusive interview with this media outlet about the prices of special products in refineries, Mehdi Mohseni, a refining industry expert, said: Mandatory pricing, in which the government determines the price of products based on its own opinion, is one of the biggest obstacles to production in the country. This type of pricing reduces the profit margins of industries and weakens their ability to cover current costs (such as personnel costs, maintenance) and new investments. A clear example of this problem can be seen in the country’s electricity industry. In this industry, mandated pricing has caused companies to be unable to cover their costs and their profitability to decline sharply. This situation has destroyed the incentive of private investors to enter this industry and has fueled an imbalance in supply and demand.
He considered the main reason for these problems to be the disproportionate increase in product sales rates with the growth of costs and inflation, saying: Production costs increase due to inflation, but the selling prices of products do not increase in the same proportion. This reduces the profit margins of industries and makes investment in them unattractive. The result of this trend is an increase in demand without a proportional increase in supply, which leads to serious imbalances.
The economic life of refineries depends on the profit of special products. This expert in the field of refining says: In the refining industry, refineries receive crude oil from the government and in return, deliver the main products (gasoline, diesel, fuel oil, LPG, kerosene and jet fuel). These main products, which constitute about 85 percent of the refinery’s production, are exchanged for crude oil. However, the economic life of refineries depends on 15 percent of special products, which provide their profitability and cover their investment costs.