OMCs call for mechanism to disburse freight

ISLAMABAD:

While expressing dismay over delay in payment, oil marketing companies on Wednesday called for chalking out a mechanism to disburse freight under the proposed deregulated oil pricing regime which had accumulated to over Rs50 billion.

Oil and Gas Regulatory Authority (Ogra) manages the inland freight equalisation margin (IFEM) fund – ranging between Rs60 billion to Rs70 billion – that has not been paid to oil marketing companies (OMCs).

Oil refineries collect 10% deemed duty on petrol and deposit it into the IFEM fund. They also collect 10% deemed duty on diesel, out of which 2.5% is deposited into the fund. In addition, oil refineries pay a penalty on producing Euro 92 quality fuel that is also deposited into the IFEM fund.

Sources said that Ogra had been making IFEM payments to OMCs upon the transportation of petroleum products. But these payments had been delayed, which has raised serious concerns for OMCs.

Sources further revealed that, a month ago, the Economic Coordination Committee (ECC) had also directed Ogra to work out a mechanism to implement oil pricing deregulation from November 1. However, the regulator failed to finalise terms of reference for implementing TORs even after the passage of one month.

According to a statement, Ogra Chairman, Masroor Khan conducted a meeting on Wednesday with OMCs on the subject of deregulation of petroleum products in the first phase.

Senior executives of Ogra and the Ministry of Energy (Petroleum Division) alongside CEOs of OMCs, members of Oil Companies Advisory Council (OCAC) and other industry players also attended the meeting.

OMCs presented their point of view and suggestions were discussed in detail. In the second phase, it was decided that a meeting shall be held with refineries and other stakeholders to obtain their point of view to develop the most holistic possible roadmap on the way forward with the objective to develop final TORs for deregulation.

During a meeting held in the first week of August, the government had agreed to give the oil industry a free hand to set petroleum product prices by implementing a deregulation mechanism under the new proposed oil policy effective November 1, 2022.

At present, the prices of petroleum products, like petrol and high-speed diesel (HSD), are regulated while the price of furnace oil is deregulated.

The executives of oil refineries, Minister of State for Petroleum Musadik Malik, Energy Task Force Chairman Shahid Khaqan Abbasi and officials of Ogra reached the agreement that both the products produced locally by oil refineries and those imported by Pakistan State Oil (PSO) would compete in the local market.

At present, PSO imports 50% of petroleum products whereas 50% of the products are produced locally by oil refineries to meet the energy demand of the country. According to the proposed plan, there will be market competition between PSO and local oil refineries.

After implementation of the new oil refinery policy, the government will withdraw the margins set for the OMCs including for PSO. In the new policy, market forces will thus determine the margins of OMCs and oil refineries.

In the proposal, the government had reduced the regulatory duty from 5% to 2.5%, which was later increased to 5% on the import of crude oil. According to the agreement, the government agreed to reduce the duty to zero in the new oil refinery policy.

Sources said that in the second phase of consultation, oil refineries representatives would hold a meeting with Ogra to work out a mechanism to implement deregulation of petroleum products.

Refineries representatives will meet Ogra officials on September 12 to finalise terms of reference relating to the deregulation of oil prices.

Published in The Express Tribune, September 8^th, 2022.

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