Revision in OMC margins proposed

ISLAMABAD:

The Oil Companies Advisory Council (OCAC) has expressed concern over the approval of standalone revision in dealer margins, which will be effective from August 1, 2022.

The government has recently approved an increase in dealer margins up to Rs3 per litre, taking the total margins to Rs7 per litre.

In a letter sent to the secretary Ministry of Energy - Petroleum Division, OCAC on behalf of the oil marketing companies (OMCs) said that the margins of dealers and OMCs had been revised collectively in the past.

“This has been done not just for the sake of uniformity but also because it is understood that the cost of doing business for the OMCs and dealers is aligned. Therefore, any increase in costs is applicable to both the OMCs and dealers alike.”

OMCs faced additional significant exposures and costs from which the dealers were protected, the OCAC said and contended that increasing dealer margins on a standalone basis “is prejudicial and will set an undesirable precedent”.

“It needs to be reiterated that the OMC margins are insufficient to cover the costs that have not yet been included in pricing.”

OCAC maintained that financing the cost of maintaining 20 days of stock cover and pipeline dead stock ate up around 70% of the current OMC margins.

The turnover tax of 0.5% consumes around 30% of the OMC margins. This significantly diminishes the profitability for the OMCs.

Delay in berthing of vessels due to port congestion has resulted in demurrages, which is also reducing the margins of OMCs. Apart from that, Letter of Credit confirmation charges have increased significantly and have severely impacted OMCs’ profitability, according to the OCAC.

Based on the current global and local scenario, the OCAC recommended that OMC margins be revised to Rs8.85 per litre for both petrol and high-speed diesel effective August 1, 2022.

“It is evident from the above that immediate action is required to ensure the survival of OMCs and urgent action is requested for the revision of OMC margins,” the OCAC said.

In a summary moved to the Economic Coordination Committee (ECC) in a recent meeting, the Petroleum Division proposed an increase in the margins of dealers from Rs4.90 per litre to Rs7 per litre on petrol and from Rs4.13 per litre to Rs7 per litre on high-speed diesel.

The division also proposed an increase in the margins of OMCs to Rs7 per litre on petrol and diesel due to the high cost of doing business, turnover tax and other financial issues.

It told the ECC that OMCs were having low margins on petroleum products due to high cost of doing business in Pakistan.

The major share of oil supply is with the state-run oil marketing company, Pakistan State Oil (PSO). It is also the largest supplier, distributor and importer of oil to meet strategic requirements of the country.

PSO is facing the problem of circular debt as its receivables have swelled to over Rs600 billion and is facing a liquidity crunch.

Published in The Express Tribune, July 31^st, 2022.

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