Oil marketers seek PM's intervention over margins

Caution industry is on verge of collapse due to unaddressed challenges

LAHORE:

The Oil Marketing Association of Pakistan (OMAP) has demanded immediate intervention from Prime Minister Shehbaz Sharif to resolve the longstanding issues of the petroleum industry.

In a letter written to PM Sharif, OMAP Chairman Tariq Wazir said that, despite being a cornerstone of Pakistan's economy, the petroleum industry was teetering on the verge of collapse due to the unresolved issues. "The continued neglect of these challenges poses a threat to oil marketing companies (OMCs), particularly the emerging entities that foster competition and innovation," he said.

He sought an urgent meeting with the PM to discuss comprehensive solutions and work collectively for safeguarding the industry. "The petroleum industry is the lifeline of Pakistan's economy and its collapse would have devastating consequences for the nation's energy security and economic stability," he remarked. "Your intervention is urgently requested to address the grievances."

He went on to say that despite numerous requests and meetings with relevant authorities, the long overdue revision in OMC margins remained unaddressed.

"This inaction is unsustainable, given the escalating costs of business. Revising margins is crucial to maintaining the financial health of OMCs and ensuring uninterrupted service delivery," he said. Wazir recommended that the Oil and Gas Regulatory Authority (Ogra) should be directed to reconsider the proposed margins and suggest a revision that aligns with the current market dynamics.

An appropriate margin must be applied to ensure the survival of OMCs and their ability to continue providing reliable and efficient services across Pakistan. "The margin issue, pending since July 2024, is significantly hindering the operational efficiency of OMCs," he said. The OMAP chairman contended that zero-rated sales tax on petroleum products, including motor spirit (petrol) and high-speed diesel (HSD), had resulted in the accumulation of Rs65 billion in held funds. This policy has drained cash flow across the sector, with the smaller and emerging OMCs struggling to sustain operations.

He pointed out that the exemption classification for petroleum products only exacerbated the financial strain as sales tax on freight and capital goods could not be recovered. Despite repeated appeals, delays in sales tax refund persist, creating a financial bottleneck.

Regarding the recovery of foreign exchange loss, Wazir said that the outstanding forex losses resulting from motor fuel imports exceeded billions of rupees, leaving OMCs in an untenable financial position. "The absence of a clear mechanism to recover these losses has created significant disruptions in cash flow and supply chain operations."

Additionally, there is an urgent need to address the previously borne forex losses, which continue to weigh heavily on the sector. Although the Ministry of Energy and Ogra recognise that companies have suffered losses, they are displaying reluctance in addressing the matter promptly and expediting the reimbursement process. "A comprehensive and expedited solution is crucial for the survival of the industry," he added.