Oil industry complains about delay in raising margins

Points out 50% increase in margins must come into force from mid-Dec 2025, as agreed by ECC

ISLAMABAD:

The Oil Companies Advisory Council (OCAC) has expressed serious concern over failure of the regulator to implement the government's decision to raise margins of oil companies and over call for full recovery of investment in digitisation.

In a letter to the Oil and Gas Regulatory Authority (Ogra) chairman, OCAC pointed to the absence of a notification for 50% increase in margins of oil marketing companies (OMCs), approved by the Economic Coordination Committee (ECC), for motor spirit (MS) and high-speed diesel (HSD). "As per our understanding, Rs0.61 per litre (out of a total of Rs1.22) was intended to take effect from December 15, 2025, with the remaining 50% linked to the achievement of digitisation targets."

During the above-stated meeting held on January 14, 2026, the industry was informed that the federal cabinet had advised linkage of the entire increase in margins with 100% digitisation. "While the industry remains fully committed to digitisation, this revised linkage has effectively deferred implementation of even the already-approved immediate increase, thereby placing an additional financial strain on OMCs," it said. "OMCs continue to operate under a regulated margin framework that has remained stagnant for over two years and does not reflect escalating costs related to operations, financing, compliance and mandatory digitisation initiatives." OCAC requested Ogra to plead the industry's case, in coordination with the Ministry of Energy (Petroleum Division), before the cabinet for immediate notification and incorporation of 50% of the approved increase in margin, with effect from December 15, 2025.

Digitisation cost recovery

OCAC recalled that it had already shared the digitisation cost recovery mechanism through a letter dated January 12, 2026. To ensure timely, transparent and equitable recovery of digitisation investments, "it is proposed that a dedicated escrow-type account titled "Digitisation Fund" be created in the MS and HSD price structure, similar to the existing statutory levies (petroleum levy and climate support levy).

The proposed mechanism provides for milestone-based reimbursements, ensuring funds are released against verified implementation, including due compensation of the significant investments already made by the OMCs in digitisation, it said. Under the mechanism, OCAC added that the combined margin of Rs2.56 per litre for the OMCs and dealers was proposed to be included in the price structure as a separate line item, split equally between MS and HSD, ie, Rs1.28 per litre.

It asked Ogra and the Petroleum Division to obtain approval of the ECC for the inclusion of that separate line item and exercise joint oversight over the operation of the fund. It suggested that the account may be maintained as a savings account, with returns further supporting the digitisation initiatives.

The oil industry body also called for immediate reimbursement, within 15 days of the establishment of the mechanism, covering both capital and operational costs. It underlined the need for the recovery of investment in auto tank gauging (ATG) systems already installed at retail outlets and the contribution made by the OMCs to the Raahguzar App as well as the contributions made by the OMCs and refineries to the track and trace system. OCAC proposed setting an initial milestone for the installation of ATGs at 10 retail outlets per OMC, with reimbursement to be initiated within 15 days of the receipt and verification of requisite documentation.

It suggested the continuation of the mechanism until 2030, in line with the digitisation timelines submitted by the OMCs and extension of the mechanism beyond completion for maintenance and future technological upgrades. In the event the above mechanism is not adopted, OCAC proposed structured and ring-fenced recovery through the inland freight equalisation margin (IFEM), by incorporating the approved per-litre digitisation cost into each OMC's notified cost structure. "In such a case, timely fortnightly recovery and reconciliation would need to be ensured by Ogra."

The industry lobby emphasised early finalisation of the above matters, given their critical importance to the financial viability, regulatory compliance and uninterrupted supply operations of the OMCs.