Busy day for ECC: Oil marketing company margins increased by 32%

Waiver of long-term gas supply to result in higher import bill; nine off-the-agenda amendments approved.

Shahbaz Rana August 16, 2011


The Economic Coordination Committee (ECC) of the cabinet on Tuesday introduced major amendments to Liquefied Natural Gas (LNG) Policy 2006 besides increasing the margin of oil marketing companies (OMCs) and dealers.

The ECC increased the margin of oil marketing companies (OMCs) and dealers on the sale of petrol and high-speed diesel. It increased the margin of OMCs on petrol by 32 per cent and fixed it at Rs1.98 per litre against the current margin of Rs1.5. The dealers’ profit on petrol was increased by 26.7 per cent, or Rs0.5 per litre. The total increase on petrol prices will be less than a rupee.

The margin of OMCs on diesel was increased by 30 per cent, or Rs0.41 per litre. The new margin is Rs1.76 per litre against the current margin of Rs 1.35 per litre. The dealers’ margin on diesel was increased by almost 47 per cent, or 70 paisa per litre, to Rs2.20 per litre. The total increase in diesel prices will be Rs 1.20 per litre.

The ECC decided to implement the proposal in three phases to avoid any sudden burden on the consumers. It did not give any reason for the increase in margins.

According to IGI Securities Senior Research Analyst Sana Abdullah, Pakistan State Oil will be the biggest beneficiary of the upward revision in the margin of OMCs being the market leader in high-speed diesel and petrol sales. “Based on our preliminary analysis, if we assume the increased margins to take effect from September 1, gross profit for PSO in FY12 could rise by Rs2,430 million, contributing Rs1,579 million to PSO’s FY12 earnings (net of tax).”

Surprising decision

The country may end up importing expensive LNG because of the ECC’s decision to waive the condition of long-term gas supply. Experts say that the decision has paved the way for short-term expensive contracts.

The ECC, headed by Finance Minister Dr Abdul Hafeez Shaikh, approved nine amendments to LNG Policy 2006 in the meeting. Interestingly, this item was not on the meeting agenda. A meeting participant said that the amendments were approved in haste, adding that half of the ECC members were unaware of the changes.

“The conditionality of having the long-term supply agreement/commitment as well as the availability of sufficient natural gas reserves for minimum 20 years has been abolished,” a handout of the finance ministry said.

A businessman in the LNG sector said that LNG prices were determined on the basis of medium- to long-term contracts. He said that short-term deals would be prone to constant price change.

“Pakistan may find it difficult to strike short-term deals. With short-term contracts, no one will be interested in establishing an LNG terminal in Pakistan,” he said.

The government also inserted a new clause in the LNG policy, requiring licensees to furnish guarantees of $35 million against their delivery commitment. Also, in case a licensee fails to deliver LNG within the stipulated date, its first right to third-party access will be waived.

The clause related to the coastguard controlling the entry and exit of shipping traffic and the requirement of security escort through the coastguard at the expense of the LNG developer, LNG terminal owner/operator and LNG buyer has been deleted.

The discretionary power of the Oil and Gas Regulatory Authority (Ogra) to grant exemptions from mandatory Regulated Third Party Access or Negotiated Third Party Access requirements has also been abolished.

Resumption of supplies

The ECC also approved the resumption of POL supplies to Faqirabad, Kotla Jam, Sahiwal and Shershah depots. The Ministry of Petroleum and Natural Resources had proposed that the abandoned depots of PSO in these places should be reopened under the Inland Freight Equalisation Mechanism (IFEM).

Other OMCs will also be allowed to use the IFEM in these locations when they establish their depots there.

Published in The Express Tribune, August 17th, 2011.


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