OCAC seeks hike in margins

Govt had approved increase in dealer margins but did not raise OMC margins

ISLAMABAD:

The Oil Companies Advisory Council (OCAC) has approached Prime Minister Shehbaz Sharif, asking for a hike in margins of Oil Marketing Companies (OMCs).

Earlier, the government had approved an increase in dealer margins by Rs3 per litre, taking the total margin to Rs7 per litre. However, the margins of OMCs had not been raised, stirring controversy in the oil industry.

Following this, OCAC expressed its concern over the approval of the standalone revision in dealer margins, which took effect from August 1, 2022. The OCAC said that OMCs faced additional exposure and cost from which dealers are protected. It also contended that increasing dealer margins on a standalone basis “is prejudicial and will set an undesirable precedent”.

In a meeting held on August 2, 2022, presided by the Special Advisor to Prime Minister and Chairman Energy Task Force, Shahid Khaqan Abbasi, and also attended by the secretary of petroleum, chairman oil and gas regulatory authority (Ogra) and representatives of the OMCs, it was finally agreed to increase the margins on both motor gasoline and diesel to Rs6 per litre from the existing Rs3.68 per litre. This increase was agreed to be implemented either in one go or in phases commencing September 1, 2022.

Now, OCAC has approached Prime Minister Shehbaz Sharif to implement the agreed plan to raise the margins of OMCs. In a recent letter, OCAC has drew the premier’s attention towards the Motor Fuels Margin Revision.

The OCAC added that OMCs have been engaged, over the last few months, with senior government stakeholders on talks of revising margins due to the rapid currency devaluation. This has resulted in a substantial increase in costs and a coinciding increase in banking charges on account of country risk and devaluation.

The OCAC further said that the current OMC margin is no longer realistic as it has reduced to only 1.4% of the selling price.

As of September 26, the case for the increase had not yet been presentedt to the Economic Coordination Committee (ECC). In the meanwhile, dealer margins increased to Rs7 per litre on August 1, 2022.

The dealers’ association has also threatened to go on strike unless the government implemented an immediate increase. This is the first time that a margin increase for the dealers and OMCs has not taken place in tandem. It may be noted, however, that such a gap between OMCs and dealer’s margins does not exist in other markets.

Published in The Express Tribune, October 2^nd, 2022.

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