OGRA, Finance Division suggest rationalisation of oil margins

Say OMCs, dealers are seeking higher margins on petrol and diesel sale

ISLAMABAD: The Finance Division, Planning Commission and Oil and Gas Regulatory Authority (Ogra) have noted that oil marketing companies (OMCs) and dealers are seeking higher margins on the sale of petroleum products and have proposed the rationalisation of charges to shield the interest of consumers.

Responding to a proposal for pushing up petrol and high-speed diesel margins, Ogra argued that any increase in OMC and dealer margins would affect the end-consumers. It suggested the Ministry of Energy compare financial statements of the OMCs in order to assess the justification for the increase in margins.

The regulator, however, pointed out that it was the mandate of the federal government to decide the matter as it deemed fit and justifiable. The Finance Division was of the view that the proposed increase in petrol margins appeared to be on the higher side when compared with the hike approved last year. An increase of 9.5% has been proposed in petrol margins for the OMCs against the hike of 3.5% in 2018.

In the case of dealers, the proposed increase in petrol margins is 9.7% compared to 3.5% in 2018.

The Finance Division emphasised that the proposed increase in petrol margins was required to be rationalised as inflation in recent times was being attributed to the rise in petroleum product prices. The hike in OMC and dealer margins by the proposed quantum may further jack up inflation in the country, it cautioned.

The Planning Commission, on its part, said the Petroleum Division may take into account the average inflation rate for the period April 2018 to May 2019 rather than focusing on inflation for April 2019 alone.

In its reply, the Petroleum Division said diesel margins were revised upwards by 9.5% for a 31-month period last year by linking them with the Consumer Price Index (CPI) from November 2015 to April 2018.

However, it said, the petrol margins were revised up by 3.5% only for 12 months by considering the CPI from May 2017 to April 2018. Therefore, the difference appeared.

The Petroleum Division wants to increase the OMC and dealer margins on the sale of petrol and high-speed diesel by up to Rs0.34 per litre in the wake of higher inflation following hefty depreciation of the rupee against the US dollar.

OMC and dealer margins on petrol and high-speed diesel are revised annually based on the CPI. Accordingly, the margins were revised upwards effective from July 1, 2018, in line with the decision of the Economic Coordination Committee (ECC).

OMCs have requested, through the Oil Companies Advisory Council (OCAC), for timely revision of the margins due to a substantial increase in the cost of doing business, caused by higher inflation and rupee depreciation in the financial year 2018-19.

Consequently, the revision in margins has been worked out based on the CPI for the period April 2018 to May 2019, published by the Pakistan Bureau of Statistics.

The Petroleum Division has proposed that OMC margins on petrol and high-speed diesel may be jacked up by Rs0.25 per litre while dealer margins may be increased by Rs0.34 per litre and Rs0.29 per litre for petrol and diesel respectively. With the proposed increase, the OMC and dealer margins on petrol would go up to Rs2.89 and Rs3.81 per litre respectively whereas the high-speed diesel margins will rise to Rs2.89 and Rs3.22 per litre respectively.

Published in The Express Tribune, October 18^th, 2019.

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