Oil marketing companies: More blessing on the cards

Government likely to increase profit margins by at least Rs0.3 per litre.

KARACHI:

The government will continue to further jack up profit margins for oil marketing companies’ (OMCs) to ease liquidity constraints amid circular debt.

The Oil and Gas Regulatory Authority recently increased profit margins by 13 to 16 paisa per litre increase while government officials reveal that further increase by Rs0.3 to 0.35 per litre on sale of petrol and diesel is on the cards, according to a Topline Securities research note.

The spiraling circular debt situation has taken receivables of Pakistan State Oil, the country’s larges oil marketing company, Rs157 billion as of March 2011.

The large OMCs will benefit considerably but even the small OMCs which were having liquidity constraints will get a breather given the fact that their product mix is highly skewed towards petrol and diesel, adds the note.

Diesel margins at almost 3-year high

The government’s renewed focus on OMCs has taken diesel margins to a three-year high of Rs1.48 per litre. Diesel contributes around 34% of the total oil sales in Pakistan.

Margin hovered around the same level in November 2008 when international oil prices were around $50 to $55 per barrel. Interesting to note is the fact that diesel margins peaked at around Rs1.5 per litre around June to July 2008 when international crude oil prices were hovering at $130-135 barrel. This means that OMCs are enjoying a far better time, adds the note.

Moreover, petrol which is the preferred fuel nowadays due to CNG curtailment and power outages has increased distribution margin to 10-month high of Rs1.66 per litre.

Impact on OMCs

The recent increase in margins will improve Pakistan State Oil’s annualised earnings by Rs4 to 5 per share. Similarly, annual earnings of Attock Petroleum will improve by Rs1.5per share.

Moreover, if the government further increases OMCs margins by Rs0.3 to 35 per litre, PSO and APL earnings per share will improve by around Rs7.5 to 8 and Rs3 to 3.5 per share, respectively.

Published in The Express Tribune, August 30^th,  2011.