‘Artificial stabilisation causes oil industry over Rs7b in losses’

OCAC says industry will not survive if unfair adjustments are not removed immediately

Our Correspondent November 17, 2022


The Oil Companies Advisory Council (OCAC), on Wednesday, protested the government’s attempt to artificially stabilise the price of oil by placing cuts on freight charges, margins and the adjustment of foreign exchange.

The oil industry claims that it has suffered a loss of over Rs7 billion due to the government’s plan to keep oil prices artificially low.

Since the government came into power, it has been working on different formulas to keep oil prices on a lower level. Earlier, the government used the exchange rate. It had developed a formula whereby, it took the average exchange rate, but later revised it to the exchange rate, of the last day of price revision.

The government also staggered the exchange rate loss, allowing the Pakistan State Oil (PSO) to stabilise oil prices.

The OCAC, in a letter to the state petroleum minister, lamented the forced stabilisation of oil prices which was coming at the cost of the oil industry.

The letter stated that, “The price of motor fuels remained unchanged for the second consecutive fortnight of November 2022. This is despite the fact that prices were supposed to increase, based on the government’s approved pricing formula.”

Instead of passing on the increase or absorbing the impact of this increase by reducing the petroleum levy, however, the price was forcefully and unjustly reduced. Oil prices were kept artificially low on some items including freight margin, exchange loss adjustment and denying the passing of the increased margins of oil marketing companies (OMCs).

The oil industry body said that Inland Freight Equalisation Margin (IFEM) was reduced by Rs3.21 and Rs2.72 per litre on Motor Spirit (MS) and High Speed Diesel (HSD) respectively.

It further said that exchange loss adjustment was reduced by Rs3.01 and Rs2.11 per litre on MS and HSD respectively.

The letter stated that, “The long pending revision of OMCs’ margin on motor fuels was approved by the Economic Coordination Committee (ECC) on October 31, 2022. However, the revised margin of Rs6 per litre (increase of Rs2.32 per litre) for both products has not been incorporated in prices till date.”

Based on expected sale volumes for the second fortnight of November, as confirmed in a Product Review meeting chaired by the Oil and Gas Regulatory Authority (Ogra), the impact of the above unjustified adjustments was calculated to be Rs7.55 billion; this does not include the impact of exchange loss adjustments that have been withheld/ staggered by Ogra since August 2022.

“On behalf of our member companies, we would like to highlight that this forced stabilisation of oil prices at the cost of the industry is not sustainable and will severely impact the already crippled oil industry,” stated the OCAC.

The letter emphasised that the “industry is already facing a severe financial crunch due to high global prices, the depreciation of the rupee, increased LC confirmation charges and high premiums on import.”

The council warned that the industry would not be able to survive if these unfair adjustments are not removed immediately.

Published in The Express Tribune, November 17th, 2022.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.


Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ

Most Read