OCAC highlights deviation from oil pricing formula

Claims industry has faced Rs1.8b loss in a single day

ISLAMABAD:

Expressing serious concern over the notification issued for revision in petroleum prices on June 26, the Oil Companies Advisory Council (OCAC) has highlighted the deviation from the oil pricing formula approved by the Economic Coordination Committee (ECC) and has claimed that the oil industry faced Rs1.8 billion worth of loss in a single day.

“We would like to register our serious reservations wherein the increase in prices of Mogas (petrol) and HSD (high-speed diesel), as notified by the Ministry of Energy - Petroleum Division (MEPD), was not computed as per the ECC-approved formula of PSO’s actual landed cost of Mogas and HSD,” OCAC CEO Syed Zawar Haider said in a letter to Petroleum Secretary Mian Asad Hayauddin.

Prices of petrol and HSD were lower by Rs6 and Rs3 per litre respectively, Haider said, adding that it should be noted that it would have a direct impact on the cash flow and profitability of the downstream petroleum sector for the period June 26 to July 31, 2020.

“We, therefore, request that such deviations from the ECC-approved formula be avoided so that the downstream petroleum sector is not put further in a financially disadvantaged position, which is essential for its sustainability and smooth operation,” he said.

He also lamented that the price notification was received by various industry members through informal channels late in the evening, adding that by then most of the sales through oil marketing companies’ retail outlets had generally been completed. Haider said based on the approximate industry sales of 27,000 tons in case of Mogas and around 25,000 tons in case of HSD on June 26, the loss to the OMCs was estimated at Rs1.8 billion in a single day.

Had the implementation date been set for the next day, which had always been the standard practice for oil price notifications, the losses could have been avoided, he remarked.

Haider revealed that OMCs had been asked to share their sales data so the differential in sales revenue could be recovered through some mechanism that the Ministry of Energy would develop.

The OCAC CEO emphasised that any planned or unplanned price announcement should be prospective (00:00 hours next day) and not retrospective, in line with the ECC-approved formula, which would be a neat and effective way of price implementation.

“As per pricing formula, petrol prices are fixed based on Pakistan State Oil’s (PSO) previous month import basis and currently the same formula was adopted and no deviation was made,” said the Petroleum Division spokesperson. He said that in the interest of public, PSO’s prices of petrol and diesel have been reduced by Rs6 per litre and Rs3 per litre, respectively, which have been spread over 35 days (instead of 31 days) to mitigate the price reduction impact on OMCs and remainder, if any as per formula, may be adjusted in subsequent prices.

Published in The Express Tribune, July 2^nd, 2020.

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