Pakistan Institute of Development Economics

Exploring the Structure and Performance of Petroleum Retail Outlets in Pakistan
P & R Vol.1 Issue 2
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Exploring the Structure and Performance of Petroleum Retail Outlets in Pakistan (P & R Vol.1 Issue 2)

Publication Year : 2020

Petroleum industry is one of the most important industries in an economy and Pakistan is no exception. Petroleum retail outlets which are commonly referred to as petrol pumps in Pakistan, play a very important role in keeping the proverbial wheels of the economy running for the obvious reason that they provide fuel both for the domestic and commercial transport activities. Petrol pumps have often been a subject of public debate in Pakistan, mainly because their margins are fixed and they demand for increase in those margins from time to time. The margins they receive from selling a litre of petroleum products are fixed by the government and they cannot charge higher prices (margins are a part thereof) than those declared by the government, which are determined by a government approved formula. Their argument is that margins they receive from the sale of a litre of MoGas and HSD are quite low, and therefore they cannot run the petrol pumps profitably. This paper is first such attempt using primary survey data for Pakistan. The existing literature has focused on how the location of a petrol pump impacts its performance in terms of sales and profitability. In addition, since most of the literature is focused on developed countries, the impact of non-forecourt activities is also investigated. This is due to the fact in developed countries the petroleum industry is deregulated and because of intense competition, fuel retail businesses have to look for sources other than selling fuels to generate revenue. The literature on the performance of the petrol pump business indicates that both location and non-location factors are important determinants of the petrol pump business. Our results are also in line with the existing evidence on this topic.