Oil companies suffer losses
The exchange rate loss will add to financial woes of PSO as its receivables have already crossed Rs600 billion. PHOTO: afp
Oil and Gas Regulatory Authority (Ogra) is allegedly involved in manipulating exchange rate adjustment in the process of determining oil prices in a bid to keep petrol and diesel rates lower to prevent the government from political backlash.
However, the move has aggravated the cash flow of state-run Pakistan State Oil (PSO) and other oil companies.
“There has been uncertainty in oil price determination due to interference of Ogra in keeping prices lower. This has created cash flow problems for the industry,” commented a senior government official.
Ogra spokesperson, however, denied the claims when asked for comment.
According to the existing oil price review mechanism, the government takes PSO’s prices to set new rates of petroleum products in the country.
In the fresh oil price determination, PSO had worked out an exchange rate adjustment of Rs31 per litre for petrol and Rs16 per litre for high-speed diesel. It was supposed to be passed on to the consumers.
PSO sent its exchange rate working to Ogra, which turned it down and told PSO to revise the calculation. It was done in order to cut oil prices and pass on minimum impact to consumers.
PSO imports petroleum products and exchange rate adjustment is allowed to the oil marketing company to save it from losses.
In an attempt to pass on the minimum impact of oil prices, the government had revised the formula of calculating the exchange rate for oil price revision. Earlier, it had been taking the exchange rate of last day but now it has revised the formula and is taking the average exchange rate.
On August 1, the last day exchange rate was Rs250 but the government took the average exchange rate of Rs225 to reduce oil prices.
Now, in the recent revision of oil prices, the average exchange rate stood at Rs228, which was higher as compared to the market rate.
It would have resulted in exchange rate adjustment of Rs31 per litre for petrol and Rs16 per litre for high-speed diesel. However, Ogra did not allow this and told PSO to stagger the exchange rate adjustment loss.
Therefore, the regulator allowed Rs8.02 per litre exchange rate adjustment for petrol instead of Rs31 per litre, and Rs3.63 per litre in case of high-speed diesel.
According to documents, PSO sent emails to Ogra between August 12 and August 15, 2022 regarding detailed price computation in line with the approved oil pricing mechanism.
But Ogra advised PSO to revise the exchange rate calculation by staggering the recovery of exchange losses. Following that, PSO re-submitted the exchange rate working for oil prices, which included Rs8.02 per litre adjustment for petrol and Rs3.63 per litre for high-speed diesel.
Sources said that it was now being assumed that the exchange rate would come down during the current fortnight that would help to recover some losses of PSO.
They also revealed that other oil marketing companies followed the same formula and they also suffered losses.
In addition, PSO was nearing default and was going to seek a Rs50 billion loan from commercial banks for the first time.
Economic Coordination Committee (ECC) has approved the issuance of a guarantee for PSO to avail the loan of Rs50 billion from commercial banks to avoid default on international payments.
The exchange rate loss will add to the financial woes of PSO as its receivables have already crossed the Rs600 billion mark.
Other oil companies and refineries will also be facing a financial crunch due to the exchange rate losses.
Published in The Express Tribune, August 17th, 2022.
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