Govt likely to allow OMCs, dealers to set profit margins

Some believe deregulation will create monopoly, allow OMCs to make extra profits

ISLAMABAD: The government is likely to give a free hand to oil majors in setting profit margins on the sale of petroleum products to consumers - a step that is expected to promote investment and competition, but it may also give a windfall to oil marketing companies (OMCs) and dealers, officials say.

If the proposal sees the light of day, it is likely to make prices of petroleum products higher.



In the first phase, the Ministry of Petroleum and Natural Resources has proposed deregulation of margins on high-speed diesel (HSD), which is widely used in agriculture production and transportation vehicles.

In the second phase, margins on petrol, which is mostly used in cars and generators, will be deregulated to encourage investment in the industry.

Currently, OMCs are permitted to collect Rs2.41 per litre on the sale of petrol and high-speed diesel (HSD). Dealers charge Rs3.16 on every litre of petrol and Rs2.67 on diesel. Pakistan consumes around 22 million tons of petroleum products in a year and more than half of it comes through imports.

A senior government official revealed that the petroleum ministry had sent a summary to the Economic Coordination Committee (ECC), seeking its approval for increasing the margins by Rs0.11 on a litre of petrol to Rs2.52.

OMCs had, however, demanded an increase of Rs0.18, which the ministry turned down, terming it higher that could not be accepted.

For petroleum dealers, the ministry proposed an increase of Rs0.14 per litre in the margins.

At the same time, the ministry insisted that instead of revising the margins of OMCs and dealers on the sale of diesel based on movement in the Consumer Price Index (CPI), they should be deregulated under the government’s policy of liberalisation in a phased manner.

“This will give a boost to investment and lead to larger oil storage capacities in the country,” it said.

After assessing results of deregulating the diesel margins, the ministry suggested, the margins on petrol would be deregulated in the next phase for the same reason of stimulating investment in the industry.

Following deregulation of the margins, the price of high-speed diesel will vary from one filling station to another. Prices will be determined according to market forces based on demand and supply of the product.

“People will prefer to buy from the filling stations that offer cheap and efficient fuel; the deregulation of margins will also spark competition among the fuel outlets,” the official said.

He was of the view that the deregulation drive would also help stave off the pressure from dealers, who had been pressing for increasing their margins, and would enable them to cover the cost of doing business.

However, some officials cautioned that the move would result in monopoly of OMCs and dealers, who would set their own margins on petrol and diesel sale and create cartels as happened in different sectors of the economy.



They pointed to varying cases where the Competition Commission of Pakistan took notice and slapped billions of rupees worth of fines to penalise the formation of cartels, which snatched billions of rupees from the consumers.

They voiced fear that the episode may be repeated in the oil sector as well where market giants would join hands and impose high margins on end-consumers.

Published in The Express Tribune, May 24^th, 2017.

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