Oil industry seeks increase in margins

Petroleum ministry, industry officials to meet today to discuss proposal.

ISLAMABAD:

Oil marketing companies (OMCs), refineries and dealers have approached the government, seeking a review of the oil pricing formula in a bid to achieve an increase in margins and profitability.

The Ministry of Petroleum and Natural Resources will hold a meeting today (Wednesday) with representatives of refineries, OMCs and dealers to discuss the proposal of increasing the margin on petroleum products.

Sources told The Express Tribune that the petroleum industry was of the view that due to the hike in oil prices, the rate of inflation had jumped and therefore it was becoming difficult for them to continue their businesses.

They claimed that the cost of doing business had increased and therefore the government should review the oil pricing formula and give incentives. The government had fixed margins on diesel in February 2009 and on petrol in December 2010.

The margins of OMCs on petrol and diesel currently stand at Rs1.50 per litre and Rs1.35 per litre respectively. Sources said that OMCs want margins to be set at Rs2.5 per litre. Meanwhile, dealers are getting margins of Rs1.5 per litre on diesel and Rs1.87 per litre on petrol and want margins of Rs5 per litre.

Sources said that oil refineries had also sought some incentives to increase their profitability. Refineries have claimed that their business was running in losses due to the hike in oil prices and the inflationary pressure was hampering their operations.

Sources said consumers would have to face an increase of Rs3 to Rs3.50 per litre in oil prices, if the government enhanced the rate of margins for dealers and OMCs.

The oil industry has said that the issue of circular debt and changes in the ex-refinery pricing mechanism over the past two years had crippled the petroleum sector.

The Economic Coordination Committee’s decision to revise the pricing mechanism in December 2010 to deregulate petroleum products has not been implemented yet and continuous increase in international crude prices has drastically reduced refinery margins.

Published in The Express Tribune, May 11^th, 2011.