‘Price control’ causes Rs36b loss to oil industry

Industry denounces govt for violating approved pricing formula

ISLAMABAD:

The oil industry has claimed that it has faced a huge loss of Rs35.88 billion in the wake of artificial control of the government over petroleum product prices.

Of the total loss of around Rs36 billion, currency exchange loss is estimated at Rs32.6 billion for the second fortnight of February 2023 owing to the artificial adjustment of oil prices.

Separately, the industry is incurring a loss of Rs2.9 billion on account of customs duty and Rs305 million due to low margins.

The total loss does not include the impact of rupee-dollar exchange loss pertaining to imports whose payments are outstanding.

Industry players say the government is violating its approved oil pricing formula and artificial price adjustments are being made on verbal orders.

According to them, duties on high-speed diesel (HSD) and petrol imports have been reduced following verbal instructions from the Oil and Gas Regulatory Authority (Ogra).

Oil Companies Advisory Council (OCAC) Chairman Waqar Siddiqui, in a letter to Minister of State for Petroleum Musadik Malik, a copy of which was also sent to the State Bank of Pakistan governor and the finance minister, pointed out that the government had been making artificial adjustment of oil prices without following the approved formula.

He said that the practice had continued since last year and the oil industry had suffered a loss of Rs35 billion. “The oil industry will not be in a position to meet the demand for oil if such artificial oil price adjustment continues.”

According to Siddiqui, prices of motor fuels have been restricted, yet again, by the government for the second fortnight of February by not following the approved pricing formula.

He estimated that the exchange loss adjustment had been reduced by Rs22.72 per litre and Rs74.91 per litre on motor spirit (petrol) and HSD respectively.

Customs duty was also reduced by Rs4.24 and Rs3.64 per litre on motor spirit and HSD respectively “on the verbal instruction of Ogra”.

Turning to industry margins, the OCAC chairman pointed out in the letter that a long pending revision in margins of oil marketing companies on motor fuels was approved by the Economic Coordination Committee (ECC) on October 31, 2022.

“However, the revised margin of Rs6 per litre has not been fully incorporated into the HSD price to date,” as Re1 per litre is still outstanding.

Based on expected sales volume for the second fortnight of February, as confirmed in a product review meeting chaired by Ogra, the impact of such unjustified adjustments was high, Siddiqui said, adding that the impact of Rs35.88 billion did not include the exchange losses from imports whose payments were still outstanding.

“On behalf of our member companies, we would like to highlight that this continued control of oil prices since past year is not sustainable and will severely impact the already crippled oil industry,” he said.

The industry is enduring a severe financial crunch due to high global prices, depreciation of the rupee, increased Letters of Credit (LC) confirmation charges, challenges in establishing and retiring LCs, high markup rates, high premiums on import, etc. It “will not be able to survive if these unfair adjustments are not removed immediately”.

In order to ensure survival of the industry and avoid any supply chain challenges, the OCAC chairman requested for immediate revision in prices and an urgent meeting with industry members to develop a mechanism for the recovery of exchange losses.

“The agriculture sowing season is expected to start in the second week of March, but the industry will not be able to meet increased demand, if the restrictive pricing is continued further,” he cautioned.

Published in The Express Tribune, February 18^th, 2023.

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