ECC airs concern over delay in settling OMCs’ claims

Price differential claims pile up due to oil sales at lower prices

Zafar Bhutta July 05, 2024
ECC airs concern over delay in settling OMCs’ claims


Pakistan’s economic managers have expressed concern over the delay in paying price differential claims to oil marketing companies (OMCs) for the sale of petroleum products.

In a recent meeting, the Economic Coordination Committee (ECC) took up for discussion the inordinate delay in payments, which had been pending for years. Committee members asked whether any interest had been due on the outstanding payments and how OMCs were showing such receivables in their books.

The Finance Division told the meeting that most of the amount had already been budgeted but the Petroleum Division needed to verify the claims and conduct due diligence. On its part, the Petroleum Division pointed out that in line with the directives given by the government in the past, the OMCs supplied petroleum products to consumers at lower-than-regulated prices, which resulted in price differential claims of Rs11 billion.

The division revealed that it had taken up the matter of reimbursement to OMCs through a budgetary allocation but the amount could not be released due to funding constraints. For the just-ended fiscal year 2023-24, the Finance Division had allocated Rs9 billion against claims of Rs11 billion.

A breakdown of the outstanding claims showed that the price differential claims of Pakistan State Oil (PSO) for light sulphur fuel oil (LSFO) supply stood at Rs3.407 billion. On the directive of a cabinet sub-committee, dated March 31, 1996, PSO supplied furnace oil at lower prices to Kot Addu Power Company (Kapco) from July 1996 to January 2004, which led to the accumulation of price differential claims of Rs3.407 billion.

During the period from 2004 to 2008, the government kept prices of petroleum products on hold to provide relief to consumers, but in the meantime price differential claims climbed to Rs290.2 billion. The Finance Division got an audit of the claims carried out, which verified an amount of Rs287.683 billion. However, the claims of Rs38.190 million pertaining to Total Parco were left and were still payable.

Also, PSO made price differential claims of Rs3.909 billion in relation to high sulphur fuel oil (HSFO) supply to K-Electric from 2009 to 2010. The ECC approved in November 2009 the supply of furnace oil to K-Electric in 2009 and 2010 with the directive that the difference between costs of fuel oil and gas would be picked up by the government for reimbursement to PSO. It resulted in claims of Rs5.709 billion, as audited by AF Ferguson & Co.

Out of the total claims, Rs1.80 billion had already been paid by the Finance Division, leaving payables of Rs3.909 billion. In addition, the OMCs including PSO, Shell, Chevron and Total Parco imported motor gasoline, pursuant to a petroleum ministry’s letter dated August 19, 2007, and sold at lower prices.

In this case, out of the total audited claims of Rs10.69 billion, an amount of Rs7.34 billion had already been paid to the OMCs, leaving outstanding claims of Rs3.35 billion.


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