Oil companies seek revised margins

Cite reduced profit due to inflation, turnover tax and high interest rates

Zafar Bhutta August 14, 2022
Oil companies have ramped up investment in key US shale regions . PHOTO: REUTERS


The Petroleum Division has proposed to the Economic Coordination Committee (ECC) to raise margins of oil marketing companies (OMCs) by 63% following an increase in cost of doing business and revision in oil prices on a weekly basis.

It also asked the ECC to deregulate oil prices effective from November 1, 2022.

The Petroleum Division proposed to increase margins of OMCs from Rs3.68 per litre to Rs6 per litre, on both petrol and high-speed diesel (HSD).

A summary was tabled in a recent meeting of the ECC regarding revision in OMCs’ margins on petroleum products. It was also proposed to revise oil prices on a weekly basis.

However, the economic decision-making body deferred the matter until the next meeting due to paucity of time.

Following directives of the ECC, a meeting was held on August 2, 2022 to review the OMCs’ margins, chaired by ex-prime minister Shahid Khaqan Abbasi.

The meeting was also attended by the Oil and Gas Regulatory Authority (Ogra) chairman, Petroleum Division secretary, Pakistan State Oil (PSO) MD and representatives of other OMCs.

Earlier, the ECC had deliberated upon the Petroleum Division’s summary on July 28 and approved the margins of dealers at Rs7 per litre with the direction that Ogra may review the OMCs’ margins by August 10 in consultation with the stakeholders.

It could then present its recommendations for consideration of the ECC so that a decision on the margins may be made before price review to be effective from September 1, 2022.

OMCs had demanded that their margins be raised to Rs8.85 per litre due to increase in the cost of doing business. They also stressed that turnover tax, high interest rates, increased LC charges, demurrage and increased costs on account of inflation had reduced their profitability significantly.

OMCs also stated that the working capital requirement had increased on account of high prices, making it difficult to continue their business.

After deliberation in the meeting chaired by Abbasi, the Petroleum Division proposed to the ECC that petroleum prices may be deregulated with effect from November 1, 2022.

In the meantime, Ogra will conduct a thorough analysis of the implications of deregulation of petroleum prices in consultation with the stakeholders, particularly with reference to in-country freight equalisation, protection of dealer margins and collection of sales tax on dealer margins.

Ogra’s recommendation in this regard will be submitted to the ECC for consideration no later than September 15, 2022. During the interim period, the OMCs agreed that their margins may be fixed at Rs6 per litre.

Ogra, as the regulator, will monitor that margins have been accounted for in the ex-depot sales price. It was also agreed with the OMCs that in the interim period, the market would operate more smoothly if the price revision was done on a weekly rather than on a fortnightly basis.

“It is, therefore, proposed that with effect from August 5, 2022 Ogra may determine prices of petroleum products on every Friday evening with the already approved mechanism on a weekly basis and prices may then take effect from Saturday,” the Petroleum Division said.

During the recent ECC meeting, it was decided that the agenda would be taken up in the upcoming meeting. The Petroleum Division proposed revision in oil prices on a weekly basis following uncertainty in the exchange rate as the rupee had witnessed a free fall.

Published in The Express Tribune, August 14th, 2022.

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