OMCs: Keep margins on hold to fend off criticism, suggests ministry

Suggests these should be revised when oil prices are on the decline.

ISLAMABAD:

The Ministry of Finance has suggested that the Economic Coordination Committee (ECC) should keep a proposed increase in margins of oil marketing companies (OMCs) and dealers on hold until prices of petroleum products start falling in a bid to avoid criticism from the public.

“The Finance Division is of the view that the proposed increase in margins may be deferred and considered later when petroleum product prices are on the decline,” a source said, quoting the Finance Division.

According to sources, the Finance Division took the stance as the government did not want to invite criticism from the people in the face of higher petroleum product prices.

The Oil and Gas Regulatory Authority (Ogra), the industry regulator, also opposed the demand of OMCs and dealers, suggesting that the margins should be left unchanged in a bid to provide relief to the consumers.

“The change in margins will also jack up oil prices, sparking fears of strong reaction from the public and opposition parties,” the source said.

The ECC, in a meeting held on Friday, allowed Pak Arab Refinery (Parco) to charge Rs0.18 per litre as freight on high speed diesel (HSD). As a result, the company would pocket Rs1.26 billion annually from the consumers.

According to the sources, the Ministry of Petroleum and Natural Resources and OMCs had reached an understanding to increase HSD margins while deregulating petrol margins.

“The oil ministry and OMCs have agreed to deregulate petrol margins and a mechanism is being finalised,” the source said.

Earlier, the petroleum ministry had proposed a rise of Rs0.16 per litre in HSD margin but OMCs did not agree. Now, an upward revision of Rs0.19 per litre has been proposed for ECC’s approval. For dealers, an increase of Rs0.40 per litre was recommended.

The revision in margins is being calculated based on the movement of the Consumer Price Index (CPI) since the date of last revision in November 2012 and an appropriate return on investment.

The increase in margins will be made taking into account the rise of 16.4% in the CPI from November 2012 to February 2014, as announced by the Pakistan Bureau of Statistics, the state-run statistics organisation.

A study, conducted by the Pakistan Institute of Development Economics, has recommended an annual review of the margins of OMCs and dealers based on markup on assets and the CPI published by the State Bank of Pakistan.

According to the sources, the petroleum ministry had proposed deregulation of petrol margins for six months, however, the OMCs refused to take responsibility of the conduct of dealers if they manipulated the price after deregulation.

Published in The Express Tribune, March 23^rd, 2014.

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