Oil sector assured of PDC payment

Key focus in meeting with OGRA remains on outstanding Rs66b price differential

ISLAMABAD:

The Oil and Gas Regulatory Authority (Ogra) on Wednesday assured the downstream petroleum industry that it would share a revised framework and implementation timeline for the settlement of long-pending price differential claims (PDCs), following a meeting with chief executives of oil marketing companies (OMCs).

The meeting, chaired by Ogra's new leadership, brought together chief executives of more than 30 OMCs in what industry participants described as a constructive engagement after years of unresolved issues and repeated representations by the Oil Companies Advisory Council (OCAC).

During the meeting, the OCAC chairman and the Oil Marketing Association of Pakistan (OMAP) chairman highlighted the financial and regulatory challenges confronting the downstream petroleum sector. The primary focus remained on the settlement of outstanding PDCs, with unpaid claims exceeding Rs66 billion. Industry representatives also urged the regulator to simplify the verification mechanism by reverting to a purchase-based assessment, arguing that it would expedite claim processing and reduce disputes.

According to the participants, Ogra agreed to circulate revised terms of reference (TORs) for the PDC verification process along with a timeline to settle the outstanding claims. Other key industry concerns, including the revision in OMC margins, recovery of investments made in mandatory digitalisation initiatives and sales tax-related issues, were also raised. However, these would be taken up separately in subsequent meetings, they said. Industry representatives stressed that success of the ongoing process would depend on timely implementation of the commitments made. OMCs have long argued that unresolved PDCs, frozen marketing margins, rising compliance costs and policy uncertainty are undermining the financial sustainability of the downstream petroleum sector. They maintain that the resolution of these issues is also essential for ensuring uninterrupted fuel supply and building investor confidence.

PDCs owed to OMCs remain unsettled at Rs66.7 billion, tying up substantial working capital at a time of acute financial strain, even as the industry has itself eased this burden, with refineries contributing over Rs7 billion to the PDC reduction. Also, OMC margins were last revised in September 2023 (implementation staggered till December 2023) despite persistent inflation, rising operating, financing and compliance costs and the mandatory stockholding obligations. At the same time, OMCs are making investments in digitalisation, estimated at Rs1.2 billion, which has now been linked to the margin framework under Ogra's recent directive.

Between March 7 and June 20, 2026, the industry argued, the pricing formula was changed four times for motor spirit (MS) and seven times for high-speed diesel without prior consultation. The June 20 revision alone caused an estimated single-day exposure of Rs104 billion for OMC and refinery stocks, with OMCs holding roughly 505,000 metric tons of MS and 655,000 MT of HSD. These losses arose due to abrupt policy decisions imposed on companies, simultaneously required to carry mandatory strategic stocks, often exceeding 20 days of coverage.

Local gas supply to fertiliser plants

In a separate development, the government has finally managed to avoid the burden of Rs16 billion in price differential claims (PDCs) by providing locally produced gas to two fertiliser plants.

Earlier, during the US-Iran war, electricity consumers were compelled to bear high power costs because of imported liquefied natural gas (LNG) consumption by power plants. To avoid the use of expensive LNG, gas load-shedding duration was increased for domestic consumers while indigenous gas supply was approved for two fertiliser plants running on LNG in the past. The government claims there will be a price differential of Rs16 billion if the fertiliser plants are provided LNG.

Interestingly, the government also provided locally produced gas to LNG-based power plants but they were charged over Rs2,000 per million British thermal units (mmBtu) to boost the revenue of gas utilities. However, while approving the proposal of indigenous gas supply to the fertiliser plants – Agritech and Fatima Fertiliser, the Economic Coordination Committee gave the directive to pass on the benefit of cheaper gas to farmers.

The Ministry of National Food Security & Research briefed the ECC in a recent meeting that urea accounted for around 65% of the total fertiliser consumption in Pakistan. The country has 10 operational urea plants with collective annual production capacity of about 6.6 million tons, sufficient to meet domestic demand if they are provided gas without any interruption.

Eight plants, getting gas supplies from the Mari field and the Sui Southern Gas Company (SSGC) network, generally operate throughout the year. The remaining two plants – Fatima Fertiliser and Agritech – rely on gas provision from Sui Northern Gas Pipelines Limited (SNGPL) and together they have an annual capacity of 900,000 tons. It was highlighted that since October 2018, the two plants had been relying on re-gasified LNG due to the unavailability of domestic natural gas and their operation depended on ECC decisions tied to national urea requirements. As these plants face intermittent shutdowns, their production shortfall can create supply-demand gap.

The food security ministry informed the ECC that since April 2023, the SNGPL-based urea plants had remained operational, enabling the accumulation of substantial buffer stock of more than 300,000 tons per month. The improved supply brought down urea prices beginning July 2024. The price stood at Rs4,361 per 50kg bag compared with Rs4,705 in July 2024, a decline of 7.3%. Over the same period, international urea prices rose 38.9%. The ex-Karachi price of imported urea was calculated at Rs8,601 per bag in February 2026.

The ministry further said that a supply-demand analysis indicated that the total urea availability during the Rabi 2025-26 season would be around 4.28 million tons, comprising 1.15 million tons of opening stock and 3.13 million tons of domestic production. The projected urea demand for the season was around 3.42 million tons. The buffer stock for the remaining Rabi period would stay well above 300,000 tons.

However, the closure of SNGPL-based plants and the FFC (Port Qasim) plant during Kharif 2026 would result in a production loss of 718,000 tons till September 30, 2026. Fertiliser shortage may be experienced after July 31, leading to potential price escalation, the ECC was told.