OCAC demands separate policy for OMCs

Says it will help address issues of periodic margins and investment in infrastructure

Zafar Bhutta August 28, 2021


The Oil Companies Advisory Council (OCAC) has demanded the formulation of a separate policy for oil marketing companies (OMCs) to address issues of periodic margins and investment in infrastructure.

In a letter sent to Petroleum Secretary Dr Arshad Mahmood, the OCAC CEO said that while the refining policy had been finalised through an extensive process of consultation between all the stakeholders and is under approval, the council was of the view that a separate policy was also required for the OMCs.

He said that it would help address their issues, specifically pertaining to investment in infrastructure, periodic review of OMC margins, phased deregulation, etc.

“Should you need any input, we are available to extend our full support to the Ministry of Energy, Petroleum Division for the same,” he said.

Furthermore, the incentives for the refining sector have a complementary impact on other sectors of the downstream industry, and the consequent investments and upgrades will strengthen the overall industry in terms of logistics advantage (by increasing local supplies), increasing storage capacity, reducing demurrage costs and reducing working capital requirements for the OMCs.

“As you are aware, the oil industry has been facing various challenges over the past few years, which were brought to the attention of relevant forums/authorities by the OCAC on numerous occasions,” he said.

The OCAC chief lauded the government’s efforts to address the industry’s issues as well as its serious commitment to develop a consistent policy framework for meeting ongoing and upcoming challenges so as to ensure proper infrastructure planning given the growing demand for petroleum products.

He said that the refinery sector played a critical role in the energy supply chain and was of great importance to national security. Keeping in view the growing demand for petroleum products, there was an urgent need for investments in this sector to improve refining capacity, thereby, moving a step closer towards self-sufficiency in product supplies, he added.

The draft Refining Policy 2021 adequately addresses the needs to attract Greenfield and brownfield investments in the refinery sector. The policy incentivises investors by providing income tax holiday, tariff protection and customs duty exemption on import of plant/machinery while also ensuring commitment to upgrades from the refineries.

“We would also like to take this opportunity of expressing our deep gratitude for Ministry of Energy, Petroleum Division in shaping this policy framework, which clearly sets out appropriate and equitable objectives.”

Delay in increase in OMC margins

The Oil Marketing Association of Pakistan, a body of small oil marketing companies, has raised serious concern over the delay in margin revision.

OMC margins are the only source of recovering their costs in a regulated market. Since 2014, in accordance with an Economic Coordination Committee (ECC) decision, the margins have been linked with the Consumer Price Index (CPI) published by the Pakistan Bureau of Statistics.

The increase in OMC margins is due on an annual basis every July. However, the revision in margins has continued to face delays.

The last increase given on April 1, 2021 of Rs2.97 per litre was Rs0.12 less than the actual CPI increase and caused a loss of Rs7 billion to the OMCs. “This loss is unfair and has seriously set us back financially,” the OMCs said.

Published in The Express Tribune, August 28th, 2021.

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